13.1 What is transition to retirement? (TRIS/ TTR)

The transition to retirement measure allows people who have reached their preservation age to have access to their superannuation benefits without having to retire or leave their job. This measure allows people to access their super savings in the form of a specific kind of pension or income stream called a transition to retirement income stream (TRIS), the acronym TTR meaning 'transition to retirement' is also commonly used.

Essentially, a TRIS is an account-based pension from where lump sum payments can only be made in limited circumstances

To receive a payment from a TRIS, the member must have reached their preservation age (that is, the minimum age that a member can access their preserved super benefits without satisfying another condition of release).

For those born before 1 July 1960, the preservation age is 55. The preservation age of those born on or after 1 July 1960 rises as shown in the table below.

Preservation age based on date of birth

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 - 30 June 1961	56
1 July 1961 - 30 June 1962	57
1 July 1962 - 30 June 1963	58
1 July 1963 - 30 June 1964	59
From 1 July 1964	60

Source: ATO

This technical resource is intended for the use of financial advisers only. It is current at the date of publication but may be subject to change. This publication has been prepared without considering a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

13.2 Key features of transition to retirement (TRIS) income streams

A transition to retirement income stream (TRIS):

• Must be commenced using superannuation monies
• Can commence for a person who is at least preservation age (age 55 for those born before 1 July 1960, rising in increments to age 60 for those born from 1 July 1964)
• Can commence using preserved, restricted non-preserved and unrestricted non-preserved benefits. A pensioner can choose to take preserved and non-preserved components in any proportion they wish. If a TRIS income stream commences from preserved, restricted non-preserved and unrestricted non-preserved components, the TRIS income stream is deemed to have been taken from the unrestricted non-preserved components first, then the restricted non-preserved component and finally the preserved amount
• Only permits lump sum withdrawals from any unrestricted non-preserved component of the income stream. Lump sums can be taken from other components when a subsequent condition of release is met
• Requires a minimum percentage drawdown of 4% of the account balance (as at 30 June 2023) for the 2023/24 financial year. The federal government announced that the minimum pension drawdown rates would be temporarily halved for the 2019/20, 2020/21, 2021/22 and 2022/23 financial years, due to market volatility. This rule change assisted retirees who do not wish to sell their investment assets when the value of those assets may be reduced
• Caps the maximum annual payment to 10% of the account balance per annum at commencement, or 10% of the account balance each 1 July until the earlier of:

• the pensioner reaching age 65 or
• meeting another condition of release, whichever occurs first

• Does not count towards a member's transfer balance cap of $1.9 million from 1 July 2023*

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should be referred to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

13.4 How a member can benefit from TRIS/ TTR strategy

There are three main ways a member can benefit from a TRIS/TTR* strategy:

1. The income payments from a TRIS can be used to replace a member's forgone salary - a member can wind down their career by moving to part-time employment. A TRIS could enable them to top up their income. So, their net income could remain the same, even though they are working less.
2. A member can use the income to make additional repayments to debt prior to retiring.
3. A member can top up their superannuation without forfeiting their net income.

Example - TTR strategy for reducing working hours but maintaining current income

Sanjesh, 59 and earns a salary of $110,000 p.a. (excluding super). His superannuation balance is $465,000, consisting entirely of a taxable component and is fully preserved.

Sanjesh wants to reduce his working hours down to 4 days per week. He wants to know what his financial position will be if:

• his salary decreases by 20% 
• he supplements his reduced salary income by commencing a TTR pension with $450,000 of his current superannuation balance
• he retains $15,000 in accumulation phase into which employer SG contributions will be paid.

Currently, his take-home pay is $81,583.

Salary excluding super	110,000
SG rate	11%
Superannuation balance	450,000
Minimum pension drawdown p.a.	4%
	Current (working 5 days per week)	Proposed (working 4 days per week with TTR strategy)
Salary	110,000	88,000
Employer SG contribution	12,100	9,680
TTR pension	-	18,000
Taxable income	110,000	106,000
Tax on taxable income	-26,217	-24,917
Medicare levy	-2,200	-2,120
15% tax offset on TTR income	-	2,700
Total tax	- 28,417	-24,337
Net income after tax	81,583	81,663

Outcome

In reducing his workdays from 5 to 4 per week, Sanjesh's take-home salary dropped by $22,000. As Sanjesh is under 65, he can choose to drawdown between 4%-10% p.a. from his TTR pension to supplement his income.

He chooses to draw the minimum 4% of his pension account balance ($18,000) which allows him to maintain similar net income after tax. By using this strategy, Sanjesh's total tax is lower as his TTR pension income is eligible for a 15% tax offset.

Once Sanjesh turns 60 his pension payments become tax free. This would mean that he would need to draw only $14,500 from his TTR pension to maintain the same net income after tax - however he must draw at least 4% of his pension account balance as at 30 June of the prior financial year.

The terms TRIS and TTR are used interchangeably. The ATO uses 'TRIS' but "TTR' is commonly used in the industry. Both terms refer to transition to retirement income streams.

Source: Rainmaker Technical Services 2023

This technical resource is intended for the use of financial advisers only. It is current at the date of publication but may be subject to change. This publication has been prepared without considering a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements. 

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13.6 When is a TRIS in the retirement phase?

A TRIS will move into the retirement phase when the member meets one of the following conditions of release:

• age 65
• retirement
• permanent incapacity, or
• terminal medical condition

A TRIS will move automatically into the retirement phase as soon as the member reaches age 65, or if the superannuation income stream starts to be paid to a reversionary beneficiary after the member's death. For the other conditions of release listed above, the member needs to notify their super provider for the TRIS to move into the retirement phase. In these cases the superannuation income stream will move into the retirement phase at the time the provider is notified.

A member does not need to commute and restart a TRIS for it to move into the retirement phase. A member's age will affect whether or not 'retirement' has occurred. Where the member is 60 years old over, they must have:

• ceased an arrangement under which they were gainfully employed when they were 60 years old or over, or
• ceased an arrangement under which they were gainfully employed at any other time., and the trustee must be satisfied they have no intention of becoming employed again in the future.

Where the member is under 60 years old, but has reached their preservation age, they must have ceased an arrangement under which they were gainfully employed, and the trustee must be satisfied  they have no intention of becoming employed again in the future. The member may have ceased the employment arrangement prior to the member reaching their preservation age. However, 'retirement' cannot occur until the member reaches their preservation age.

Does a TRIS change into a different kind of superannuation income stream once it is in the retirement phase?

A TRIS does not convert into any other form of superannuation income stream when it moves into the  retirement phase. It will continue to satisfy the definition of a TRIS, and will only be 'converted' to another kind of superannuation income stream if it is ceased and a new superannuation income stream is commenced.

The regulatory restrictions particular to a TRIS (the maximum annual and commutation restrictions) fall away automatically once the member meets one of the conditions of release listed above, subject to the governing rules of the fund and/or the agreement or standards under which the TRIS is provided. Once those limitations are gone, the TRIS has the same restrictions and requirements as an account-based superannuation income stream.

Example: TRIS moving to retirement phase Wendy is 58 years old and still working and receives a TRIS that is not in the retirement phase at 30 June 2017. Wendy started a TRIS valued at $1.1 million on 1 January 2015. This is her only superannuation income stream. Her superannuation fund is able to claim ECPI in respect of the TRIS until 30 June 2017. From 1 July 2017, as Wendy's TRIS was not in the retirement phase it was no longer eligible for ECPI As Wendy had no retirement phase superannuation income streams she did not have a transfer balance account created on 1 July 2017. Wendy decided to retire from her job on 1 September 2018 and meets the retirement conditions of release. Wendy did not notify her fund that she has met this condition of release until 30 June 2019. On 30 June 2019 (the date Wendy notifies her fund), her TRIS moves into the retirement phase. Her TRIS valued at $1 million on this date. From 30 June 2019, as the TRIS is in retirement phase: Wendy's fund can claim ECPI on the earnings from assets supporting her TRIS, and Wendy begins to have a transfer balance account, and her account is credited with $1 million

On 12 February 2019, the Government modified the rules that determine when a TRIS is in the retirement phase to ensure that a reversionary TRIS can always be paid to a reversionary beneficiary.

This was done by adding a line to ITAA97 s307-80(3), the definition of what is not a retirement phase pension is clearer with the following insertion:
"307-80(3)(aa) the person to whom the benefit is payable is not a reversionary beneficiary".

This amendment allowed an original TRIS to be paid to the dependent beneficiary rather than having to be commuted and a new income stream started from the deceased member's underlying superannuation interests.

Source: GN 2019/1- Changes to transition-to-retirement income streams

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.