Transition to Retirement

Transition to retirement income streams (TRISs) help workers transition to retirement and save tax at the same time.

For taxpayers over 56 years old salary sacrificing pre-tax income into superannuation and drawing pension income from the fund can be very tax effective. For some taxpayers this strategy results in annual tax savings of over $10,000.

The first step is for a taxpayer to start the transition to retirement pension. The legal documents to start a TRIS can be purchased from Law Central at www.lawcentral.com.au.

With a transition to retirement pension the fund must pay an annual pension to the member of between 4% and 10% of the members June 30th account balance. Naturally the members 30th June account balance will vary each year so the minimum and maximum pension payments will also vary each year.

The tax savings from starting a TRIS are three fold:

• The employee receives less salary (due to extra salary sacrificing into super), so less tax is paid on salary income.
• The pension income is taxed at tax rates lower than the taxpayer’s marginal tax rates and receives a 15% tax offset. For taxpayers under 60 the transition to retirement pension income will be made up of a tax free component (non- taxable) and a taxable component (taxable of course). Once the taxpayer turns 60 all the transition to retirement pension income is tax free.
• The investment earnings of the fund are tax free. This saves tax and enables the fund investments to grow faster.