Accessing super before retirement

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Although earnings from assets supporting Transition to Retirement Income Streams (TRIS) are no longer exempt from tax, a TRIS is the only way a member can access their superannuation savings prior to turning 65 (although there are some exceptional Conditions of Release). You must also have reached your preservation age, which varies depending on your date of birth, ranging from 55 if born before 1 July 1960 to 60 if you born after 30 June 1964.

Yearly TRIS depends on age

There are limits on the minimum and maximum amounts of TRIS you can access from your superannuation fund each year. The minimum amount is based on your age at 1 July and is a percentage of your TRIS account balance. If you are aged 55 to 64, the minimum amount you can access is 4%, and it increases according to age until it reaches 14% for anyone aged 95 or older. If a TRIS commences during the year, the minimum amount will be calculated on a pro rata basis from the commencement date, rounded to the nearest $10. The maximum amount is 10% of your pension account balance, and this is not calculated on a pro rata basis.

TRIS is paid as a non-commutable income stream, which means you cannot convert it to a lump sum superannuation benefit, until either you reach the age of 65 or meet another condition of release. By commencing a TRIS, you can cut down on your working hours and maintain the same level of total income by supplementing what you no longer receive as salary.

Super contributions still possible

You may still continue to make contributions into your fund once you start a TRIS. You could consider setting up a salary sacrifice arrangement by putting your salary into your super fund and replacing the sacrificed salary with a TRIS. By doing this, your fund pays 15% on the sacrificed salary received instead of you personally paying tax at your marginal tax rate, which may be higher. Salary sacrifices are part of the concessional contributions cap of $25,000 per annum.

You could also consider receiving TRIS and re-contributing it back into your fund as non-concessional contributions. This will allow you to increase the tax-free portion of your superannuation savings in your fund. In this case the non-concessional contributions cap of $100,000 per annum needs to be considered. If you are under 65, the bring-forward rule applies, which means you can make total contributions of $300,000 in one year or over three consecutive financial years. For this to be possible your total superannuation balance must be below $1.6 million as at 30 June 2017.

Tax-free TRIS at 60

If you are aged 60 or older, a TRIS is tax-free. If you are aged 55 to 59, the taxable component of your TRIS is taxed at your marginal tax rate, but you will receive a 15% tax offset, which represents tax already paid by your fund.

Recent changes to the law will allow a tax exemption on earnings from assets supporting a TRIS with a balance of up to $1.6 million when the member turns 65. The tax exemption is because a TRIS will automatically be treated as a pension in the retirement phase because the member meets a condition of release by turning 65. It also means the member’s TRIS will count towards their general transfer balance cap, which is currently $1.6 million. Any amount in excess of the cap will attract an excess transfer balance tax.

If a member accessing a TRIS meets other conditions of release such as completely retiring, suffering from a terminal medical condition, or becoming permanently incapacitated, the member will need to notify the trustee of their fund that they have met a condition of release before they are eligible for the earnings tax exemption on assets supporting their TRIS. The TRIS will also count towards their transfer balance cap from the date they notify their fund regardless of when they met the condition of release.

 

Monica Rule is an SMSF Specialist. She runs webinars and seminars on the superannuation law and SMSF compliance. For more details visit www.monicarule.com.au. This article is general information and does not consider the circumstances of any individual.

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4 Responses to Accessing super before retirement

  1. Greg Diamond July 20, 2017 at 1:04 PM #

    I thought the government just removed the tax exempt status of income on a TRIS if you are over 60. Its not until you are 65 or over 60 and retired that it converts to tax free?

    • Monica Rule July 20, 2017 at 3:43 PM #

      Hi Greg,

      From 1 July 2017, the tax exemption on earnings from assets supporting a TRIS has been removed because a TRIS is no longer treated as a pension in the retirement phase. What the government has done is amend the law so that a TRIS will be treated as a pension in the retirement phase once a member turns 65 or meets other conditions of release such as turning 60 and ceasing employment. Once this occurs then the TRIS, which is now in retirement phase, will qualify for a tax exemption on the earnings from assets supporting the pension for balances up to the general transfer balance cap (which is currently $1.6 million).

  2. Gary M July 20, 2017 at 12:40 PM #

    Plus if you change jobs after 60, you can access your super, even if you don’t retire.

    • Monica Rule July 20, 2017 at 3:45 PM #

      Hi Gary,

      You are correct in that once a superannuation fund member is aged 60 and ceases employment, they will be able to access their superannuation accumulated up to that point in time. If, however, they continue to work with another employer, they will not be able to access their superannuation accumulated from that moment in time, until a fresh condition of release occurs. That is, they cease working with the second employer.

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