|
|
|
FocusOn - Superannuation pension strategy
Transition to Retirement Income Streams (TRIS)
A TRIS is
available to anyone who has reached their preservation age. Currently a
member aged 55 or over can access their superannuation benefits while still
working via a TRIS. If you were born before 1 July 1960 your preservation
age is 55 and rises to 60 for those born after 1 July 1964. A TRIS may
enable you to take full advantage of the $50,000 transitional contribution
cap available up to 30 June 2012.
What is a TRIS?
A TRIS is a
non-commutable income stream that provides access to a member’s
superannuation money prior to retirement.
A commutation is the
process of converting a pension to a lump sum. A non-commutable income
stream is one which when it ceases is not able to be paid as a lump sum. It
must instead revert back to accumulation phase. The current pension rules
require a minimum pension payment of 4% (2% for 2010) of the account balance
and a maximum of 10% annually.
What are the benefits of having a TRIS?
A TRIS can be used to
supplement your income if you wish to reduce your working hours.
Alternatively, you may wish to continue working full time and salary
sacrifice more heavily into superannuation while supplementing your income
with pension payments from a TRIS.
An advantage to
commencing a TRIS is that the income and capital gains earned by the fund’s
assets that support the pension account are exempt from tax.
Can I choose to stop a TRIS?
A member can stop a TRIS
at any time and revert back to accumulation phase.
Can I continue to make contributions to the
same fund?
New contributions into
the same fund can still be made. They continue to attract 15% contributions
tax and are held in a separate taxable accumulation account for the member.
The income and capital gains earned by the fund’s assets that support the
accumulation account are not exempt from tax.
Where both a pension
account and an accumulation account are present in a fund an annual
Actuarial Certificate is required to establish the proportion of the fund’s
income that is exempt.
Do all superannuation funds offer a TRIS?
It is not compulsory for
a fund to offer a non-commutable income stream. You will need to check with
your current fund to determine if they offer a TRIS.
A Self Managed
Superannuation Fund (SMSF) can offer a TRIS if permitted to do so by its
Trust Deed.
What tax will I pay on the pension
withdrawals?
If you have reached your
preservation age and are less than 60 years old, the taxable component of
your pension withdrawal will be included in your individual tax return and
will be taxed at your marginal tax rate. If the income is paid from a taxed
source you will be eligible for a tax offset equal to 15% of the taxable
component.
Any pension you receive
after age 60 from a taxed source will be tax free in your hands.
Examples of the effect a TRIS has on tax
payable and net superannuation balances
Annual Full Time Salary
$110,000, superannuation fund balance $500,000 and 100% taxable.
Aim: To maintain same
disposable income.
| Example 1 |
Member under 60, reduces work hours to four days per week and
supplements income with a TRIS |
| Example 2 |
Member is over 60, reduces work hours to four days per week and
supplements income with TRIS |
| Example 3 |
Member under 60, Salary Sacrifices and supplements income with a TRIS |
| Example 4 |
Member over 60, Salary Sacrifices and supplements income with TRIS |
| |
|
Example 1 |
Example 2 |
Example 3 |
Example 4 |
| |
Full
Salary | TRIS
Under 60 |
TRIS
Over 60 |
TRIS
& salary sacrifice Under 60 |
TRIS & salary sacrifice Over 60 |
| Income comparison |
| |
|
|
|
| Salary |
110,000 |
88,000 |
88,000 |
110,000 |
110,000 |
| Less Salary Sacrifice |
0 |
0 |
0 |
50,000 |
50,000 |
| Plus Pension |
0 |
17,630 |
13,310 |
40,065 |
31,850 |
| Less Income
Tax/Medicare/Rebate |
30,900 |
26,530 |
22,210 |
20,965 |
12,750 |
| Disposable Income |
79,100 |
79,100 |
79,100 |
79,100 |
79,100 |
| |
|
|
|
|
|
| Tax Comparison |
|
|
|
|
|
| Income Tax/Medicare/Rebate |
30,900 |
26,530 |
22,210 |
20,965 |
12,750 |
| Plus Contributions Tax |
1,485 |
1,188 |
1,188 |
8,985 |
8,985 |
| Plus Earnings Tax in Super |
3,050 |
40 |
40 |
305 |
305 |
| Total Tax |
35,435 |
27,758 |
23,438 |
30,255 |
22,040 |
| Tax Saving |
|
7,677 |
11,997 |
5,180 |
13,395 |
| |
|
|
|
|
|
| Super Balance Comparison |
|
|
|
|
|
| Contributions |
9,900 |
7,920 |
7,920 |
59,900 |
59,900 |
| Less Contributions Tax |
1,485 |
1,188 |
1,188 |
8,985 |
8,985 |
| Less Pension Withdrawals |
0 |
17,630 |
13,310 |
40,065 |
31,850 |
| Add Earnings - 4% |
20,337 |
19,564 |
19,737 |
20,434 |
20,763 |
| Less Tax on Super Earnings |
3,050 |
40 |
40 |
305 |
305 |
| Annual Movement in Super |
25,702 | 8,626 |
13,119 |
30,979 |
39,523 |
Published : July 2009
|
|
