Transition to retirement income streams (TRIS)
Written and accurate as at: Sep 14, 2020 Current Stats & Facts
Retirement can mean different things to different people, however, when it comes to retirement and retirement intentions, there can be common threads. For example, according to 2018-2019 ATO data*:
1. The average age of retirement was 55.4 years.
2. The top three reasons retirees left their last job included: they reached retirement age or became eligible for super; they experienced sickness, injury or disability; or they were retrenched, dismissed or no work was available for them.
3. The main factor influencing a person’s decision about when to retire was financial security.
4. For people who were intending to retire, the average age they planned to retire was 65.5 years.
5. The Government’s Age Pension remains the main source of income for most retirees, followed by super.
In terms of income from super, depending on your personal circumstances, there may be a number of options available. For example, income via a super retirement income stream, such as a:
- lifetime income stream;
- fixed-term income stream;
- account-based income stream; or
- non-commutable income stream.
Importantly, a non-commutable income stream or transition to retirement income stream (TRIS) may be of benefit if you are still working, but nearing retirement, and looking to either:
- receive additional income;
- boost your super savings and reduce your tax; or
- reduce your work hours, whilst maintaining your income level.
Below is an overview of the main points about a TRIS, inclusive of the two types of TRIS: accumulation phase and retirement phase.
Accumulation phase TRIS
1. To be eligible to commence a TRIS, you must meet a condition of release, namely, reached preservation age (determined by your date of birth, see below).
|
Date of birth |
Preservation age |
|
After June 1964 |
60 |
|
July 1963 – June 1964 |
59 |
|
July 1962 – June 1963 |
58 |
|
July 1961 – June 1962 |
57 |
|
July 1960 – June 1961 |
56 |
|
Before July 1960 |
55 |
2. To commence a TRIS, you need to transfer some or all of your super benefits to a pension account.
3. No limit applies to the amount of super benefits that you can transfer to support a TRIS—referred to as the transfer balance cap (for more information, see below).
4. The value of the assets supporting a TRIS form part of your total super balance.
5. Upon commencing a TRIS, you can elect to have the TRIS (and income payments) transferred to an eligible dependant following your passing—referred to as a reversionary beneficiary nomination.
6. Rollovers or contributions can't be made to a TRIS once it has been commenced. To receive rollovers or contributions (Super Guarantee and personal), you need to keep an accumulation account open.
7. Earnings (investment income and capital gains) from the assets supporting a TRIS are generally taxed at a maximum rate of 15%.
8. Lump-sum withdrawals can’t be made from a TRIS with the exception of, for example, unrestricted non-preserved benefits, family law splits, or commutations/’rollbacks’ to an accumulation account.
9. Income payments from a TRIS must be between 4% and 10% of the account balance each year.
Please note: The minimum drawdown requirements for retirement income streams, such as a TRIS, has been reduced by 50% for the 2019-20 and 2020-21 financial years.
10. Income payments from a TRIS must be received at least once per financial year (except for the first financial year if you commence the TRIS in June).
Please note: You can elect to receive income payments from a TRIS either fortnightly, monthly, quarterly, half-yearly, or yearly.
11. The taxable component of income payments from a TRIS attract a 15% tax offset if you are between preservation age and 59. All income payments are generally tax-free if you are aged 60 or over.
12. Insurance can’t be held in a TRIS. To hold insurance, you need to keep an accumulation account open.
Retirement phase TRIS
An accumulation phase TRIS moves to a retirement phase TRIS when you meet a condition of release with a ‘nil cashing restriction', such as permanent retirement, attaining age 65, permanent incapacity, or terminal illness.
Please note: Aside from attaining age 65, you generally need to notify your super trustee that you have met one of the conditions of release listed above for the TRIS to move to a retirement phase TRIS—alternatively, you may have the option to commute your accumulation phase TRIS and commence an account-based pension.
Importantly, when this move occurs, and with regards to what has been covered above, the following applies:
1. A limit applies to the amount of super benefits that can support a TRIS—referred to as the transfer balance cap, which is currently set at $1.6 million (indexed) per person.
Please note: If you only use a portion of the transfer balance cap, the unused portion will be indexed. The transfer balance cap does not apply to any subsequent growth or losses.
2. Earnings from the assets supporting a TRIS are generally exempt from taxation.
3. Lump-sum withdrawals can be made from a TRIS, and paid to you tax-free if you are aged 60 or over.
4. Income payments from a TRIS are no longer subject to the '10% of the account balance each year' limit. However, income payments are subject to the minimum drawdown requirements (see the below table).
|
Age |
Minimum % of account balance at start of year |
|
55-64 |
4% |
|
65-74 |
5% |
|
75-79 |
6% |
|
80-84 |
7% |
|
85-89 |
9% |
|
90-94 |
11% |
|
95 or older |
14% |
Please note: The minimum drawndown requirements for retirement income streams, such as a TRIS, has been reduced by 50% for the 2019-20 and 2020-21 financial years.
Important considerations
1. By commencing a TRIS, you may be drawing down on your super earlier than expected. This may have long term consequences, such as reducing your balance earlier than anticipated in retirement.
2. Depending on your financial situation, goals and objectives, a TRIS may or may not be appropriate for you. Therefore, it’s important to consider seeking professional advice prior to commencing a TRIS.
If you have any questions regarding this article, please contact us.
*Australian Government, Australian Bureau of Statistics. (2020). 6238.0 - Retirement and Retirement Intentions, Australia, 2018-19.