Explaining Superannuation | Transition to Retirement Phase

Transition to Retirement Pension Explained

A Transition to Retirement Pension, also called a Transition to Retirement Income Stream (TRIS), is a government initiative designed to help superannuation members move into retirement. Through a TRIS, members can access their preserved benefits from self-managed super funds (SMSFs) as well as other types of retail and industry super funds. Starting a TRIS will count as a valid Condition of Release from Super.

How does a Transition to Retirement Income Stream (TRIS) work?

• Eligibility – an SMSF member must be at least 60 which is their preservation age and not have turned 65 and still working and not otherwise retired
• A member formally elects an amount to be transferred from a member’s accumulation account to a TRIS and the SMSF trustee considers the request in a trustee minute and a confirmation of the pension details are provided to the member such as the start date, the amount, the pension minimum and maximum for the year, it cannot be partially commuted and whether the member has elected a reversionary pension beneficiary
• It is critical that the decision to take a TRIS is made prior to it starting in a formal member request even if the final documentation is prepared at a later time i.e. the member requests a TRIS to be commenced from 1^st January 2026 with $600,000 and the trustee accepts this and confirms the calculation of the tax components and other final details will be provided after the draft financial statements have been prepared
• The minimum pension required to be paid is 4% of the opening pension balance at 1^st July
• Up to a maximum of 10% of the opening pension balance at 1^st July can be paid to the member
• Only the minimum pension is apportioned if started part way through the year
• Even if a TRIS is started on the 20^th June a member can withdraw 10% of the opening pension balance as it is not apportioned
• It does not count towards a member’s Transfer Balance Cap (TBC) as an eligible member is not retired but if a member retires after turning 60 and formally advises the SMSF trustee or turn 65 the TRIS will convert to a retirement phase pension and will count towards a member’s TBC. The general TBC for the 2025/26 year is $2million but is expected to increase to $2.1 million based on the relevant CPI figures but the ATO have not confirmed it as at the date of writing this article
• The pension can be commuted in whole and rolled back into accumulation account, but the tax components will then be mixed together
• The pension cannot be partly commuted except in limited circumstances such as a release authority is payable by the fund in relation to paying excess contributions or Div 293 tax or there are unrestricted non preserved components which is relatively rare in an SMSF

Hint – A member’s TBC is the most an individual can have in retirement phase pensions across all super interests.

Can I stop my TRIS?

Yes, this is possible by rolling back the balance of the TRIS into accumulation phase. The tax components of the TRIS are mixed together with the member’s accumulation account. A pro-rated minimum pension payment must be paid prior to the commutation.

When would an SMSF member start a TRIS?

A TRIS can benefit members aged 60 to 64 who are still working but planning for retirement. A member can only have one accumulation account but there is no limit on the number of pension accounts a member can have. A TRIS can be commenced so a member can:

• supplement their income as they reduce work hours or shift to part-time
• eliminate or reduce debt using preserved super benefits
• separate tax components by running multiple pensions e.g. commencing a TRIS before making a large non concessional contribution which can also be turned into a TRIS with a 100% tax free component
• consider a recontribution strategy to increase the tax-free component which is particularly helpful when preparing an estate plan
• maintain their income while topping up their super

Tax rates are relevant to 2025/26 financial year and include Medicare at 2%

Salary sacrifice is based on the difference between the concessional contribution cap of $30,000 and super guarantee contributions of $10,920 = $19,080.

Hint – ensure your employer basis your superannuation guarantee contribution on your pre-salary sacrifice arrangement $91,000 x 12% = $10,920

Does my SMSF pay tax on a TRIS?

A TRIS (Transition to Retirement Income Stream) does not allow your SMSF to use the exempt current pension income (ECPI) concession for earnings from supporting assets, unlike a retirement phase pension. Income from a TRIS is taxed at 15%, which is the same as an accumulation account. However, it is eligible for capital gains tax concessions, such as having the tax rate reduced to 10% if the asset is held for over 12 months.

Do I pay tax on my TRIS?

From 1 July 2024, a TRIS can only be commenced if you are 60 when you meet your preservation age but not turned 65.  Pension payments from a TRIS are tax-free once you turn 60 unless you have an untaxed element which is rare in SMSFs but may be taxed at your marginal rate with a 10% offset.

Previously, it was possible to start a TRIS before age 60 meaning pension payments could be taxed. If you inherit a TRIS as a spouse or eligible child, the income stream is also tax-free, unless both you and the deceased member were under 60 at the time of death. Tax generally applies at your marginal rate with a 15% offset but only to the taxable component as the tax-free component remains tax free when paid.

What happens to my TRIS when I turn 65?

• Your TRIS automatically transfers to a retirement phase pension when you turn 65 without ceasing and commencing a new pension
• There is no longer 10% maximum restriction on pension payments
• The TRIS can be commuted in part as it is now fully unrestricted non preserved which you can access as a lump sum at any time
• The pension balance is now counted towards the member’s personal TBC being the maximum amount an individual can have in retirement phase pensions from all superannuation sources
• The value of the pension on turning 65 must be reported to the ATO in the fund’s quarterly TBAR
• Earnings, including capital gains, on assets supporting the pension are tax free when you turn 65

Hint – check your pension documents and the fund’s trust deed to ensure there are no hidden restrictions on transferring a TRIS to retirement phase. Your SMSF trustee has to prepare draft financials to determine what the balance of your TRIS at that time. This means the fund’s assets must be valued at market value, so the correct pension value is reported.

It is crucial to look at your options as you approach your 65^th birthday. As there is no limit on a TRIS the balance could already exceed your personal TBC.

Some options to consider before turning 65 include:

• do nothing and the TRIS will automatically transfer to a retirement phase pension
  • your SMSF needs to report the pension balance in a TBAR when you turn 65
  • the terms and conditions remain the same except for those outlined above
  • the pension minimum for that year does not change
• rollback your TRIS before you turn 65
  • pay an apportioned amount of your pension minimum of your TRIS before the rollback
  • update the market valuation of fund assets and prepare draft financial statements
  • review your personal TBC and ensure your new pension does not exceed it
  • commence a new account-based pension (ABP)
  • report the new ABP in the fund’s quarterly TBAR
  • calculate an apportioned pension minimum in relation to the new pension to the end of the year and ensure it is paid before 30^th June

It is crucial to obtain advice from your superannuation specialist or licensed financial planner to plan for your retirement and consider the options above.