Retiring soon? Start your transition by working less while receiving a pension

TRIS: Transition to Retirement Income Streams, also known as Transition to Retirement Pensions

The Government introduced the Transition to Retirement measure to make it easier for individuals to stay in the workforce longer and ease into their retirement. The scheme essentially offers individuals the option of reducing their working hours by supplementing their wages with superannuation pension income, rather than needing to retire permanently in order to access their superannuation benefits. 

Regardless of the hours you work, you now have more options. You can access your superannuation, provided you meet certain conditions. Firstly, you must have reached your preservation age (see Table 01 below). Secondly, you must use your superannuation to buy a special ‘income stream’ (also known as a pension).

You might also be interested in reading about other ways to access your super by learning about the Conditions of Release here.

Table 01: Preservation age

The special income stream lets you receive a regular income from your superannuation benefits but you can’t generally withdraw a lump sum. You will only be able to withdraw a lump sum when you retire permanently from work, when you reach 65 years of age, if you become permanently incapacitated, have a terminal illness or if you die (in which case your dependants will receive your benefit).

Table 02: Percentage of account balance

Another requirement is that the amount paid each year must be between a minimum and maximum percentage of the member’s balance. The maximum pension amount that can be drawn is 10% of the balance, and the minimum pension requirement for all pensions is shown in Table 02. Members commencing a TRIS will generally be under 65, so the minimum requirement is usually 4%.

Just remember! If you are under 60 years of age, the taxable component of the pension you withdraw from your superannuation must be declared in your income tax return. This generally comes with a 15% offset. After 60, the pension becomes tax free and does not need to be declared in your individual income tax return. 

You might also be interested in reading: Turning 65 soon? See what this means for contributing to your superannuation. 

Case study: how TRIS works in practice
  • Mr Simpson is 57 years of age and currently working full time.
  • He would like to cut down his working hours from five days a week to three.
  • His current income is $75,000.
  • He has $500,000 in his super fund.

We can see from Table 03 below that Mr Simpson is able to maintain his net income from when he worked full time by supplementing it using a TRIS, as long as he stays within the minimum (4%) and maximum (10%) range (in this case it works as Mr Simpson has $500k). Since Mr Simpson is under 60, he would also need to declare the amount that he took as a pension in his personal tax return, which you can see that I’ve calculated at $4,760.66 (assuming no other income, of course).

Table 03: How Mr Simpson can maintain his net income through TRIS (at age 57)

Additionally, once a pension is started in the fund, the earnings generated by the capital of that pension will be tax free – this could mean significant tax savings.

It gets even better after Mr Simpson turns 60, as shown in Table 04 below.

Table 04: How Mr Simpson can maintain his net income through TRIS (at age 60)

Overall, this scheme works for Mr Simpson as it helps him lower his working hours and overall tax payable, while maintaining his cash flow and lifestyle. Since Mr Simpson is no longer required to pay tax on the pension he saves $4,760.66, which he can keep in his super fund.

How Rivkin Super can help you

Rivkin Super is an annual SMSF administration service designed to support and educate passionate, self-directed SMSF trustees get the most from their retirement fund. For a fixed fee which includes general local investing advice ‘Rivkin Local’, we offer a high level of personal service and one phone number for all your administration and dealing needs. If you're interested in setting up a new SMSF, or transferring the administration of your existing fund to us, read When is the right time to start an SMSF? or schedule a complimentary call, here.

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