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Transition to retirement

How a member can benefit from TRIS/ TTR strategy

Section: 13.4

13.4 How a member can benefit from TRIS/ TTR strategy

There are three main ways a member can benefit from a TRIS 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 - TRIS strategy for reducing working hours

Sanjesh, age 59 earns salary of $110,000 p.a. Sanjesh has $465,000 in superannuation which consists wholly of a taxable component and is fully preserved.

Sanjesh would like to consider reducing his working hours as he eases into retirement. He would like to reduce his working hours down to 4 days per week and is considering a TRIS strategy which will require him to salary sacrifice a portion of his pre-tax income to superannuation. Sanjesh currently receives take-home pay of $81,583.

Sanjesh would like to know what his position would be if his salary reduced by 20% and whether he could supplement his new, lower income with a TRIS pension.

Sanjesh decides to salary sacrifice up to the maximum concessional contributions cap* per year. On his new, lower income, Sanjesh will receive SG from his employer of $9,240. and his after-tax take-home pay is estimated to be $55,213.

Sanjesh uses his superannuation to start a TRIS with $465,000. He must withdraw a minimum of 2% (2022/23) ** or $9,300 from his TRIS. Sanjesh can use these payments to replace some of his reduced salary.

*The concessional contributions cap is $27,500 in 2022/23. Sanjesh will therefore be making the maximum salary sacrifice contribution available to him as follows:

Employer SG contributions: $9,240 (10.5% x $88,000)

Salary sacrifice contributions: $18,260

Total super contributions: $27,500

**In 2022/23 the minimum pension drawdown is 2% for a person preservation age to age 64. This reflects the temporary minimum drawdown rates which was implanted during the period of the COVID-19, and which ends 30 June 2023. After this the minimum pension drawdown for a person preservation age to age 64 will revert to 4%.

xx

Current position - Sanjesh works 5 days

per week

  Sanjesh reduces his work hours to 4 days per week  
Financial year

2022/23

   
SG rate

10.5%

   
Salary

110,000

Salary (has dropped by 20%)

88,000

Salary sacrifice

nil

Salary sacrifice

18,260

Employer SG contribution

11,550

Employer SG contribution

9,240

Total super contribution (SG only)

11,550

Total super contribution

27,500

Reduced salary (n/a)

110,000

Reduced salary

69,740

Tax on taxable income

26,217

Tax on taxable income

13,132

Medicare levy

2,200

Medicare levy

1,395

Total tax

28,417

Total tax

14,527

Net income after tax

81,583

Net income after tax

55,213

    Income from TRIS pension^

26,370

    New net income after tax

81,583

     
In reducing his work days from 5 to 4 per week, Sanjesh's take-home salary dropped by 26,370. Sanjesh can between 2%-10% p.a. from his TRIS pension to supplement his income. So he could choose to withdraw $26,370 so that his take home pay will be the same as before.

Alternatively, Sanjesh could choose to reduce his expenses and elect to draw a smaller amount from his TRIS, as long as it is above the required minimum.

Note: Sanjesh will need to consider how his superannuation balance will be impacted by taking the TRIS income, that is, at age 65 his superannuation balance may be less than it would have been had he not started the TRIS.

Source: Rainmaker Technical Services 2022

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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Last modified: Wednesday, July 13, 2022