A Transition to Retirement Pension is an income stream that you commence in your SMSF when you are aged between preservation age and 64 and NOT "Retired". It is also known as a TRIS/TRAP. It enables individuals to gradually move to retirement by accessing a limited amount of super.
No Tax Exemption Benefits
From 01 July 2017 earnings on assets supporting the TRIS are taxable at a rate of up to 15%, which is taxed in a similar way as Accumulation Accounts. Accordingly, there is no tax advantage in commencing a TRIS. In addition, personal tax is also payable on the "Taxable" portion of your Pension withdrawals if you are between preservation age and 59.
Benefits of commencing TRISs
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Individuals are able to access super benefits from the SMSF (subject to the annual Minimum and Maximum requirements) to meet their living expenses while still working.
Drawbacks of commencing TRISs
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Annual compulsory withdrawals must be made to comply with the SIS payment standards.
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Tax is payable on the "Taxable" portion of pension withdrawals if withdrawals are accessed between preservation age and 59
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Super benefits accessed might not be able to be returned to SMSF due to the contributions cap
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More paperwork is involved
TRIS in Retirement Phase (R-TRIS)
A TRIS will enter the Retirement Phase (i.e. functions in the same way as an SABP) if the member has subsequently satisfied a condition of release with a nil cashing restriction:
- Meets the condition of release 'Retirement' and notifies the trustees;
- Meets the condition of release 'Terminal Illness condition' and notifies the trustees;
- Meets the condition of release 'Permanent Incapacity' and notifies the trustees; or
- Attains age 65 (with no need to notify the trustees)
A TRIS in Retirement Phase (R-TRIS) is subject to the Transfer Balance Cap regime and the earnings are exempt from tax. Careful planning ahead of time is required to avoid the breach of the Transfer Balance Cap. Your minimum pension payment requirement for a Financial Year remains the same after the TRIS enters the retirement phase while the maximum pension payment requirement does not apply for an R-TRIS.
1. Enter the Retirement Phase on 65th Birthday
In this case your TRIS will enter the Retirement Phase automatically on your 65th birthday. No notice/document is required, and you can continue to work beyond age 65.
2. Enter the Retirement Phase on the Retirement Date
In this case, you must meet the definition of "Retirement" and sign a “Retirement Declaration” to trigger the conversion. The definition will vary depending on when you cease work. Your TRIS will enter the Retirement Phase on the Retirement Date once you notify the trustees of your retirement.
If you cease employment between preservation age and 59, "Retirement" means that at the time you ceased employment you never intended to work again either on a full-time or part-time basis (defined as more than 10 hours per week).
If you cease employment after age 60, "Retirement" means you cease your employment. In this case the intention to return to the workforce is irrelevant. The definition of retirement in this case is less stringent than for those under 60.
Importantly your retirement must be “real” in order for your TRIS to enter the retirement phase (e.g. reducing your working hours with the same employer without actually ceasing your employment would not meet the definition of "Retirement" discussed above).
As soon as you retire from the workforce and you are satisfied that the definition of "Retirement" can be met, please complete the “Retirement” Application here.
Comparison
Please see the table below which summarises the differences between a TRIS and an R-TRIS.
|
TRIS
(Non-Retirement Phase)
|
R-TRIS
(Retirement Phase)
|
| SMSF Tax on Income |
15% |
Tax Free |
SMSF Tax on Capital Gains
(Asset Owned Under 12 Months)
|
15% |
Tax Free |
SMSF Tax on Capital Gains
(Asset Owned Over 12 Months)
|
10% |
Tax Free |
Personal Tax on Pension Withdrawals
(Age 60 or over)
|
Tax Free |
Tax Free |
Personal Tax on Pension Withdrawals
(Preservation Age to 59)
|
Click Here |
Click Here |
|
Maximum Pension Withdrawal Limit
|
10% |
No Maximum Limit |
|
Subject to Transfer Balance Cap
|
No |
Yes |
Seek Professional Advice from a Financial Adviser
ESUPERFUND is a no advice model and does not provide financial advice to clients. We recommend that you seek professional advice from a financial adviser. A licensed financial adviser will consider your personal situation and make a recommendation suitable to your particular financial needs.
It should always be remembered that Trustees are legally responsible for all the decisions made even if you obtain advice from a Financial Planner. Whilst a Financial Professional can provide advice and assistance you are ultimately responsible for the SMSF.