Important! Since 1 July 2017, the tax exemption on pension fund earnings financing a transition-to-retirement pension (TRIP) has been removed. This change applies to TRIPs in place before July 2017 as well as TRIPs commenced on or after 1 July 2017. This super change became law in November 2016.
Q: Your website says: “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.” But on the TRIP form I have from my super fund it says I have to be permanently retired or be working part time. Which is correct? I can’t see any reference on the ATO site to a need to be working part time. So can I continue working full-time and still do TRIPs?
A: We are an information site rather than advisory site so we cannot provide you with specific advice. What we can say however, is that an individual can work full-time while taking a transition-to-retirement pension (what we call a ‘TRIP’).
A super fund doesn’t have to offer TRIPs, and your super fund may not offer this type of income stream. Based on the information contained in your question, I suspect that the form you have is for a fund member considering retirement, rather than considering a TRIP. I suggest you confirm with your super fund whether they offer TRIPs, and whether there is another special form for this type of income stream.
For the purposes of starting a TRIP, a condition of release is satisfied if an individual has reached preservation age (at least age 55, and increased to age 56 and older since 1 July 2015, and, age 57 and older since 1 July 2016, and effectively age 58 and older since 1 July 2017, depending on date of birth). The condition of release for starting a transition-to-retirement pension makes no mention of whether an individual is working full-time or part-time. The regulations do however stipulate specific conditions applicable to a TRIP, such as:
- no more than 10% of the account balance withdrawn each year,
- the income stream must be non-commutable (that is, not able to be converted to a lump sum). See pre-July 2017 exception to this condition in the ‘Note’ paragraph immediately below.
Note: For that second condition above, relating to not being able to convert your TRIP to a lump sum, or not being able to withdraw lump sums, there was an exception applicable before July 2017 (but not applicable post-July 2017): when the fund member had 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, before July 2017, could be accessed as a lump sum without breaking the TRIP rules. The lump sum counted towards the minimum pension payment amount required to be paid each year, but did not count towards the 10% maximum payment limit. Since 1 July 2017, the option of treating a pension payment as a lump sum (or a lump sum payment as a pension payment) is no longer possible.
Super alert! Since1 July 2017, a TRIP is no longer treated as a superannuation income stream in retirement phase, which means the earnings on TRIP assets are no longer tax-exempt; instead 15% earnings tax will be imposed on TRIP earnings.
Note: The current legislative backing for the rules applicable to TRIPs can be found in sub-regulation 6.01 of the Superannuation Industry (Supervision) (SIS) Regulations 1994, and in Schedule 1, Item 110 of the SIS Regulations.
Background: A TRIP enables Australians who have reached their preservation age (at least age 55, and age 56 and older since 1 July 2015, and age 57 and older since 1 July 2016, and effectively age 58 and older since 1 July 2017, depending on date of birth) to access their super in the form of a pension without retiring or satisfying an additional condition of release. A pension may also be called an income stream by your super fund, but note that since 1 July 2017, a TRIP is no longer be treated as an income stream in retirement phase. You can also purchase an annuity as a transition-to-retirement income stream. Note that when taking a TRIP you can withdraw no more than 10% of your account balance each year. The tax exemption for earnings on the assets supporting a TRIP was removed from 1 July 2017.
Preservation age: If you were born before 1 July 1960, your preservation age is 55. If you were born after that date, your preservation age is at least 56 years. If you were born before 1 July 1960, you reach 55 years of age by 30 June 2015. If you were born after June 1964, your preservation age is 60 years. For more information on your preservation age, see SuperGuide article Accessing super: What is my preservation age?
Although some individuals use TRIPs for a gradual transition into retirement, the majority of TRIPpers use a salary sacrificing strategy to boost super savings and reduce tax, while working full time. When the concessional contributions cap for over-50s increased to $35,000 (for 2016/2017 year, and for 2015/2016 and 2014/2015 years), the popular ‘salary sacrificing and TRIP’ strategy generated greater interest by those in full-time employment and/or those on higher incomes. (For more information on the specific contribution rules see SuperGuide article Superannuation contributions: Wearing two caps for 2017/2018 year).
Interest in TRIPs has dropped dramatically due to the government removing the tax exemption on pension asset earnings for TRIPs (since 1 July 2017), and due to the cut in the concessional contributions cap to $25,000 (since July 2017) for all ages.
Note: If you’ve currently reached your preservation age and retired, then you can withdraw your super benefits without the need to start a TRIP. You can start a regular account-based pension, or you can take a lump sum. Reaching preservation age and retiring is another condition of release available (and one of the most popular) for accessing superannuation benefits.
I explain how a TRIP works in more detail in the following SuperGuide articles: