Transition to retirement
How a member can benefit from TRIS/ TTR strategy
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:
- 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.
- A member can use the income to make additional repayments to debt prior to retiring.
- 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|
|Minimum pension drawdown p.a.||4%|
|Current (working 5 days per week)||Proposed (working 4 days per week with TTR strategy)|
|Employer SG contribution||12,100||9,680|
|Tax on taxable income||-26,217||-24,917|
|15% tax offset on TTR income||-||2,700|
|Total tax||- 28,417||-24,337|
|Net income after tax||81,583||81,663|
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.
Last modified: Monday, July 24, 2023