TRIPs: 10 interesting facts about transition-to-retirement pensions

SUPER ALERT! On 3 May 2016 (in the 2016 Federal Budget), the Coalition government announced that, from 1 July 2017, it intends to remove the tax exemption on pension fund earnings financing a transition-to-retirement pension (TRIP). This change, confirmed after the Coalition won the July 2016 Federal Election and subject to legislation, will apply to TRIPs in place before July 2017 as well as TRIPs commenced on or after 1 July 2017.

Note: The special $35,000 cap for over-50s continues to apply for the 2016/2017 year (or more specifically, applies to anyone who is aged 49 years or over on 30 June 2016). If you’re considering a transition-to-retirement pension, while continuing to make super contributions, then seek taxation advice on the merits of such a strategy for your personal circumstances, especially beyond 30 June 2017. I explain this strategy in Fact 6 of the article below.

I have often described transition-to-retirement pensions (TRIPs) as the super saver’s version of ‘having your cake and eating it’.

A transition-to-retirement pension enables Australians who have reached their preservation age (at least the age 55 and now increased to age 56 and older, depending on date of birth) to access their super in the form of a pension without retiring or satisfying an additional condition of release (for more information on your preservation age see first interesting fact below).

TRIPs were originally introduced in July 2005 to help Australians who wanted to transition to retirement via part-time work. By starting a TRIP, you don’t have to retire to withdraw your super benefits. You can work part-time or full-time or even casually.

Although some individuals use TRIPs for a gradual transition into retirement, the majority of TRIPpers appear to have used the strategy for boosting super savings and tax management. The key message many advisers may use when recommending a TRIP is: most Australians who have reached preservation age (at least 55 and now increased to age 56 and older since 1 July 2015) can boost super savings while cutting their tax bill, depending on an individual’s level of income and marginal tax rate. The changes announced by the government, and that will take effect from 1 July 2017, will neutralise the tax benefits of TRIPs for many Australians.

One of the more popular TRIP strategies is to salary sacrifice into your super fund up to your concessional (before-tax) contributions cap, and replace that income with tax-free (if over 60) pension payments, or concessionally taxed pension payments (if under 60). The right combination of salary and super will depend on your salary level, your age, your tax position, the size of your super benefit and your income needs (see Fact 6 below for an example of how this strategy works, but also note that earnings on assets financing TRIPs will no longer be tax-exempt).

Note: Since the over-50s concessional contributions cap has been reduced over time (it was $100,000 in 2009), the right balance of salary sacrifice contributions and pension payments may need to be revisited. Currently, the over-50s concessional cap is $35,000 for anyone aged 49 years or over on 30 June 2016 (for the 2016/2017 year), and will drop to $25,000 from 1 July 2017 (subject to legislation).

Want to know more? Check out the following 10 interesting facts and figures about TRIPs.

1. You must have reached preservation age.

If you have reached your preservation age (that is, the minimum age that you can access your super — at least 55 years of age, and now increased to 56 years and older since1 July 2015), you can start a transition-to-retirement pension (TRIP) and continue to work, and continue making super contributions. If you were born before 1 July 1960, your preservation age is 55, that is, you turn 55 before 1 July 2015. If you were born after June 1964, then your preservation age is 60 (see table below). For more information on your preservation age, see SuperGuide article Accessing super: What is my preservation age?

Date of birthPreservation age
Before 1 July 196055
1 July 1960 – 30 June 196156
1 July 1961 – 30 June 196257
1 July 1962 – 30 June 196358
1 July 1963 – 30 June 196459
After 30 June 196460

Source: Adapted from the Superannuation Industry (Supervision) Regulations 1994, Regulation 6.01 

2. Tax breaks on TRIPs can be compelling, until 30 June 2017.

Any earnings on assets financing your transition-to-retirement pension (TRIP) are exempt from earning tax, although this exemption will be abolished for TRIPs from 1 July 2017 (subject to legislation). When you receive pension payments from a TRIP and you’re over 60, your pension payments will also be tax-free. If you’re under the age of 60, the taxable component of pension payments are taxed but you gain access to a pension tax offset of 15%. The tax-free component of the pension will be tax-free, even when under the age of 60.

3. You must withdraw no more than 10% of your TRIP account balance.

You can withdraw no more than 10% of your account balance each year. For example, if the account balance of your TRIP is $500,000 on 1 July, then you can withdraw no more than $50,000 for the financial year. If your TRIP’s account balance is $200,000, then you can withdraw no more than $20,000.

4. You must withdraw a minimum amount each year from your TRIP.

You must also ensure that you withdraw a minimum payment from an account-based TRIP, which usually means you must withdraw at least 4% of the assets financing the pension each year. For an individual aged from 55 to 64, the minimum payment for a TRIP for the 2016/2017 year, is 4% of the account balance as at 1 July 2016 (see table below). Temporary, lower, percentage factors were available in earlier years to allow account balances to recover from the Global Financial Crisis, but the percentage factors have now reverted to normal. For more information on minimum pension payments see SuperGuide article Minimum pension payments for 2016/2017 year.

Minimum account-based pension payments: 2016/2017 year and future years

Age of pension account-holderPercentage factors
Under 654%
65 to 74 5%
75 to 79 6%
80 to 84 7%
85 to 89 9%
90 to 94 11%
Aged 95 or older14%

Note: Amount calculated on 1 July each year, unless first year of account-based pension, and then pro-rated from commencement day. If commencement day of the super pension is on or after 1 June of the financial year, then no minimum payment is required for that financial year. Minimum amount to be rounded to nearest $10.

5. You cannot withdraw lump sums from your TRIP (except in one instance).

A TRIP is like any other account-based pension (income stream), with two major exceptions: you can only withdraw a maximum of 10% from a TRIP (refer to Fact 3), and in nearly all cases, you cannot withdraw lump sums until you retire, or until you satisfy another condition of release such as reaching the age of 65.

Note: Generally speaking, you cannot convert your TRIP to a lump sum. In other words, a TRIP is a non-commutable income stream in most instances. The one exception to the non-commutable rule is when the fund member has unrestricted non-preserved benefits in the TRIP account. You may have these type of benefits if you were a fund member before July 1999. If so, this category of benefits are not preserved and can be accessed as a lump sum without breaking the TRIP rules. The lump sum counts towards the minimum pension payment amount required to be paid each year (see Fact 4), but does not count towards the 10% maximum payment limit (see Fact 3).

In all other cases, you may be able to commute your TRIP into a lump sum when you retire, or turn 65, or satisfy some other condition of release, depending on the type of income stream you have chosen as your TRIP.

6. A popular TRIP strategy, at least until 30 June 2017.

A popular TRIP strategy is to salary-sacrifice up to your annual concessional contributions cap (see below for latest caps), and then receive pension income from a TRIP. This strategy can offer the following advantages:

  • salary sacrificing reduces a person’s taxable income while the sacrificed contributions reside in a concessionally taxed environment.
  • earnings on pension assets are exempt from tax within the fund (although TRIPs will lose this tax exemption on earnings from 1 July 2017), and the earnings on contributions will be subject to up to 15% tax compared to a person’s marginal rate of tax on income outside the fund. (Note that if your adjusted taxable income is higher than $300,000, your concessional super contributions will be hit with an additional 15% tax, taking total tax on super contributions to 30%.)
  • pension payments from a TRIP to a fund member are tax-free for over-60s, which means tax is payable only on the reduced taxable income from a person’s salary. (For under-60s, pension income still forms part of an individual’s assessable income and the individual is eligible for a 15% pension offset/rebate.)

Note: The special concessional cap of $35,000 applies to anyone aged 49 years or over on 30 June 2016 (for the 2016/2017 year), and is applicable to those eligible to commence or continue running a TRIP. The annual general concessional contributions cap, available to under-50s is $30,000 for the 2016/2017 year (not applicable for those eligible to start a TRIP, because the general cap applies to those aged 48 years or younger on 30 June 2016).

For example: Joan is 62 and earns $90,000 a year plus super. If she does nothing, her income tax bill will be $21,247 plus 2% Medicare levy of $1800, taking the total tax take to $23,047 (for the 2016/2017 year). She decides to commence a typical TRIP strategy. She salary sacrifices $26,000 into super (her annual concessional cap is $35,000 and her employer contributes $8,550 in Superannuation Guarantee payments). She then receives pension payments from her TRIP, which is tax-free so the pension payments don’t form part of her taxable income. Her taxable income is reduced to $64,000 and Joan’s pension income is tax-free. Joan’s income tax bill is now $13,627 ($12,347 income tax plus $1,280 Medicare levy) rather than $23,047 ($21,247 income tax plus $1800 Medicare Levy), although her additional super contributions are subject to 15% contributions tax of $3,900. In summary, Joan has saved at least $5,520 in total taxes (while boosting her super account by $22,100, after contributions tax is deducted). Potentially, if Joan runs a self-managed super fund, she can offset the 15% contributions tax by receiving franked dividends from Australian shares.

7. Not all super funds offer TRIPs.

Not all super funds offer transition-to-retirement pensions. You will need to check with your current super fund whether they offer this pension option.

8. Ensure your fund’s trust deed permits TRIPs.

If you run your own super fund (SMSF), and you want to start a TRIP, you need to ensure that your fund’s trust deed permits such income streams.

9. Running a TRIP and contributing to a SMSF may require segregation.

If an individual runs his or her own SMSF and chooses to salary sacrifice while taking a TRIP, then the SMSF trustees must either segregate the fund’s assets that finance the TRIP, or obtain an actuarial certificate. If a fund does not segregate pension assets from assets representing accumulation phase, then the SMSF trustees must then obtain an actuarial certificate each year to identify the tax-exempt income derived from pension assets.

10. A TRIP is not necessary if you can already access your super.

If you can already access your super benefits then you don’t need a TRIP. You can start a regular retirement income stream or take your benefit as a lump sum without having to go through the process and cost of a TRIP. For example, if you’re aged 65 or over, then you don’t need a TRIP. If you’re over the age of 65 and you’re eligible to contribute to super (you satisfy the work test), then you can also take advantage of strategies to cut your income tax bill by making before-tax contributions while also receiving an income stream.

For more information on TRIPs, see the following SuperGuide articles:


  1. I agree 100% with Paul Simpson regarding rorting within super and disagree 100% with Shane. Please correct me if I am wrong and point me in the right direction. eg; I have 2 super policies, 1 with MLC and 1 with Smith and Wesson, so therefore I am paying 2 lots of fees. If there was no rorting going on, I should be able to withdraw the balance of my MLC account and close it, keeping in mind that I have paid MLC fees to look after my money, and put it in my Smith and Wesson super account and the only cost to me should be a $2.50 electronic funds transfer fee and perhaps a postage stamp. Kindest regards Paul.

  2. There shouldn’t be any fees or charges for a super fund to set up either an income stream (IS) or transition to income stream (TRIP) account .

    The different between these 2 products is that with TRIP, you can only withdraw a maximum of 10% a year from the account balance but there is no limit on the IS as funds are fully unrestricted non-preserved.

    If you have reached your preservation age but before 65 and you have not retired yet, you can use the preserved monies in your accumulation account to set up a TRIP. However, if you have reached your preservation age and retired, then you will have an IS. You do not have a choice. You can only have one or the other that fits your circumstances. So generally, you have a TRIP between ages 55-64 and you have not retired yet but once you turn 65, you can’t have TRIP because all funds are unrestricted non-preserved and the maximum 10% does not apply.

    If you already have a TRIP and you have accumulated more money in your accumulation account, your options are to set up a brand new TRIP using the money from the accumulation account. This means you will have 2 TRIP accounts and pay 2 sets of fees.

    An alternative is to rollover the existing TRIP to your accumulation account and start a brand new TRIP with the total account balance.

    Paul, there is no rorting going on in superannuation.

  3. alan barnes says:

    I am 68 years old with a SMSF. I have a TRIP in progress. If I do not take the TRIP does any income to my SMSF taxed at 15%. I read where you say if you are over 65 you do not need TRIP. I am working full time. I know that At the moment I pay no tax on any money received from my SMSF (within the limits specified.)

  4. Kev Rogerson says:

    From pt 6 above – ……She salary sacrifices $18,000 into super (her annual concessional cap is $25,000 and her employer contributes $9,000 in Superannuation Guarantee payments)……. – The example quotes the individual contributing a total of $27,000 concessional contributions. Penalty tax will reduce the savings further.

  5. Barry Fitzhenry says:

    An iteresting point…after commencing a TRIP, further contributions then go an accumulation account rarther than your pension account. Tax is payable on income apportioned to the accumulated account. Intially I was advised to roll the pension and accumulated accounts together…bit messy…latest advice (which I hope is right?) just start another pension from theaccumulation account. Apparently you can repeat this exercise in later years again.

  6. paul simpson says:

    Re pt 10 above.

    Why should a TRIP cost any more than a pension.
    Arent they both the same except the maximum is 10% for the trip?

    I am astounded how a very simple 6 page pension or Trip document can be charged many $100’s
    -where some SMSF administrators do it for free.

    Lots of rorting if you ask me!!

    I cant believe how this very simple proceedure has been changed into a nightmare (read expensive) by the government (SIS act)


    i found the information helpful


    good stuff

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