Transition to Retirement or TRIS pensions are commonly misunderstood by superannuation members and advisers alike. The TRIS legislation was introduced in the early 2000’s in an effort to ease the transition from full-time work into retirement for many Australian’s.
The eligibility was simple, if you had attained your preservation age, which ranged from 55 to 60, you were entitled to access your superannuation benefits on a ‘transitional’ basis. This transitional basis meant you could only draw on your superannuation balance as a ‘pension’ with a maximum withdrawal of 10% of your account balance per year.
By drawing this type of pension you were entitled to the same tax exemption as those in ‘full’ pension mode (i.e. post retirement). This meant all income and capital gains on assets supporting a TRIS pension would avoid the 15% superannuation income tax rate. The benefits were enormous, for those still working and over the age of 60, you were able to make pre-tax contributions, reducing your annual income tax bill, and replace this income by drawing a tax free pension from super.
In 2017, this strategy effectively came to an end. The legislation implemented from 1 July 2017, removed the tax exemption on assets supporting transition to retirement pensions. The result? TRIS pensions are now only beneficial to a small group of retirees aged over 60 (and therefore drawing a tax-free pension) and who actually require the income they are drawing.
For instance, in the past most would commence a TRIS pension just obtain the tax exemption on all income within the fund and then replace the minimum pension drawdown with regular contributions. The imposition of the $1.6m balance cap and removal of this tax exemption has basically rendered the strategy useless.
As a side note, it’s worth keeping in mind that turning a TRIS pension into a full pension only requires the meeting of a full condition of release. These conditions include ‘retirement’ from full-time employment for any amount of time, attaining 65 years of age, or simply ceasing an employment arrangement that was already in place. For those changing profession or receiving redundancies late in their careers this can represent a great tax planning opportunity.