1346877926nM8h5M.jpgAs you’re aware, superannuation (super) is a long-term savings for retirement. Generally, youcannot access your super until you retire or until meet a condition of release.

How do you get paid your superannuation benefits?

So when you retire or meet a condition of release and can access their super, how do they receive the money from their super fund? You can ask your super fund to pay you in one of the two ways:

  • as a lump sum cash payment; or
  • as regular payments in the form of an income stream (also known as “allocated pension” or “account based pension”. This is not the Centrelink age pension.

There are two types of income stream accounts available:

  • Retirement Income Stream (RIS) account where you will have to retire or meet a condition of release before you can use your superannuation funds to set up this account; and
  • Transition to Retirement Income Stream (TRIS) account.

This article focuses on how you can cash in your super as a TRIS in the form of regular payments made to you from your super fund.

If you meet the criteria you may be able to access your super by using the money in your super account to set up a TRIS account while you continue to work. With TRIS, you don’t have to retire to access your super but you must have reached your preservation age first before your super fund allow you to set up the TRIS account.

The preservation age table

Super is a long-term savings for retirement and generally you cannot access it until you reach 65 or retire after reaching your preservation age. However, since the introduction of TRIS in 2005, you can access some of your super after reaching your preservation age. Your preservation age can be anywhere between 55 and 60, depending on when you were born – refer to the table below:

 

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

After   30 June 1964

60

What exactly is a TRIS?

TRIS (Transition to retirement income stream) is a non-commutable income stream or allocated pension which means you cannot request for a lump payment from it. The TRIS account, once set up, you will receive an income from it with regular payments from your super fund; however, the amount is restricted to only 10% of the account balance annually. The legislation requires you to take a minimum of 4%pa.

You can choose the amount to receive anywhere between 4% and 10% and the frequency you want to receive these payments (fortnightly, monthly, quarterly, half yearly or yearly) from your TRIS account. The minimum amount you must take from TRIS each year is 4% of the account balance and up to a maximum of 10%.

For example, let’s say you’re 56 years old, still working, you have $120,000 in your super account but you can’t access it because you’ve not retired. However, as you have reached your preservation age, you use say $100,000 super to set up a TRIS. You choose to receive the maximum amount, i.e. 10%pa. In this scenario, you will receive $10,000 from your TRIS account per annum. If you take it monthly, then your regular payments will be $833.33 a month. If you choose to take the minimum amount, this will give you $4,000 a year.

Between your preservation age (55-60) and 64, you cannot take more than 10% of your account balance unless you retire. When you turn 65 (regardless of your employment status), or if you retire before 65, the 10% limit is no longer applicable. This means the TRIS account becomes the normal income stream (RIS) account and you can withdraw a lump sum or increase your regular payments to more than 10% without restrictions.

In the above example, the account balance of $100,000 is reduced by regular payments made to you. However, the amount in the account balance is invested in accordance with your selected investment options and is increased by any investment earnings you may receive.

What are some of the benefits of the TRIS account?

The TRIS product became available to super members since July 2005 but it is not compulsory for super funds to offer it. If your super fund does not offer TRIS, you can always rollover (transfer) to another super fund that does. TRIS was initially designed to help people slowly easing into (transition) retirement, hence, the name Transition to Retirement Income Stream. Let’s take a look at this scenario – a 60 year old guy who doesn’t want to retire completely (he either can’t afford to retire yet or loves his job so much) so he continues working part time; three days a week. This means his regular take home income will reduce. To supplement his reduced income, he may be able to use some of his super money to set up a TRIS account from which he will receive regular payments (between 4% and 10% of the account balance) each year.

These days, TRIS is more popularly used as a tax minimisation strategy especially for high income earners by combining with salary sacrifice. How it works is that you give up part of your salary (up to $25K pa maximum which includes the 9% SG) by asking your employer to pay it to your super fund as a salary sacrifice contribution, instead of paying you as a salary. By salary sacrificing to super, your pay will be reduced by the amount you sacrificed.

The benefit of doing this is that the amount you salary sacrificed and paid it to your super fund will only be taxed at 15%. Whereas if you take the amount as an income, you’ll be taxed at your personal marginal tax rate which can be up to 46.5% depending on how much you earn.

What if you can’t afford to reduce your take home income? This is where TRIS comes in. To supplement your reduced income, you can use part of your super to set up a TRIS account and receive a regular income from it of up to 10% of the account balance each year. You need to assess and ensure the amount you receive from TRIS is enough to live on and sufficiently covered the amount you salary sacrifice to super.

Another benefit of the income stream account (both TRIS and RIS) is that you do not have to pay tax on any interest you earn. Whereas the interest you earn from a super account is generally taxed at 15%.

The tax treatment of TRIS benefits

Tax is a complex subject and it is not possible to explain exactly how much an individual has to pay without knowing their circumstances as it depends on many factors.

Generally, your TRIS payments are taxed this way:

  • The amount you use to start to the TRIS account may contain “taxable component” only or both “taxable” and tax-free” components. If there are two components, the payments you receive come out from both components proportionately.
  • The proportion of the amount paid from the tax-free component is not taxed.
  • The proportion of the amount paid from the taxable component is taxed at your personal marginal tax rate but you receive a tax rebate of 15%.
  • If you’re 60 years or older, you do not have to pay any tax regardless of the components.

How to set up a TRIS account

Firstly, check that your super fund does offer a TRIS product. If so, there will be an application form in the income stream Product Disclosure Statement that you need to complete. If your super fund doesn’t offer TRIS, you can rollover part of your super account balance (or full) to a super fund that does. Be careful that if you do a full rollover from your existing fund, you’ll lose your insurance. You can retain insurance cover in your existing fund by doing a partial rollover to the new fund in order to set up the TRIS.

You can set up a TRIS account by transferring the money from your existing super account within the fund or transfer the money from another super fund.

Complete the income stream application form and provide this key information to your super fund:

  1. Personal details;
  2. Tax File Number;
  3. Tick the appropriate box to say that you have reached your preservation age but not yet retired and you want to set up a Transition to Retirement Income Stream account;
  4. Nominate the amount you would like to open the TRIS account with. You either use the amount in your current super fund or transfer the amount from another super fund;
  5. Choose your investment options;
  6. Choose how much you would like to receive from your TRIS account – the amount must be anywhere between the minimum and maximum (4% and 10%).  This amount can be changed at anytime as long as it is between the minimum and maximum;
  7. The frequency you would like to receive payments;
  8. Your bank account details into which your super fund can pay you by EFT. Some super fund may also offer to pay you by cheque;
  9. Nominate a beneficiary (optional) to receive your benefit in the event of your death;

In addition to the above information, you’ll also need to provide the following documents:

  1. A certified proof of identity document (eg a Driver’s Licence or Passport);
  2. A copy of your bank statement showing your name, address, account number and BSB; and
  3. If you’re under 60, complete the Tax File Number Declaration form from the ATO.

What happens after your TRIS account has been set up?

Once your TRIS account has been set up, you’ll receive regular payments based on the amount you nominated. You can vary the amount at any time as long as it is between 4% and 10% of your account balance. You can also request to change the frequency of payment at any time but you must receive at least one payment a year.  When you retire or turn 65, your TRIS account becomes a normal income stream account which means there is no restriction as to how much you can withdraw each year. If you retire before 65, you’ll need to make a declaration to your super fund that you have retired; your super fund then reclassifies the account from TRIS to RIS.

If you no longer require the TRIS account, you can transfer (rollover) it back to your super account at anytime.

You cannot add additional amount to your TRIS account. However, if you need to add more money to the account balance, transfer it back to you super fund, combine all amounts together and recommence another TRIS.

The account balance used to calculate the minimum and maximum percentage you can withdraw is determined as at 1 July each year, i.e. whatever the account balance on 1 July, this amount will be used to determine the minimum and maximum to be paid that year.

In July each year, super funds write to each member asking them to nominate the amount they would like to for the next 12 months. If you don’t tell your super fund the amount you want to receive, they will continue to pay you based on the previous year’s amount, as long as it meets the minimum requirement. Your super fund will also send you the PAYG Payment Summary telling you the total amount you received the previous year and the amount of tax withheld. You’ll need to declare these amounts in your tax return.

This information is for educational and general purposes only. For more information about TRIS, we suggest you contact your super fund.  To find out if TRIS is appropriate for you, we recommend that you seek advice from an appropriately qualified financial planner.

If you have any questions or comments, please feel free to ask or make a comment.