Post 1st July 2017 an SMSF can establish one of two version of Account Based
1. The Transition to Retirement Income Stream (TRIS) and;
2. The Exempt Current Pension Income Stream (ECPI)
Transition to Retirement Income Stream (TRIS)
The TRIS kept the same attributes and structures as prior to 1st July 2017 regarding when it can be established which is post preservation age (currently age 57, for more information regarding preservation age please click here).
It also kept the tax treatment for the pension payment, whereby if a person is over aged 60 the pension is tax free. If it is paid to a person below age 60, the taxable portion of the pension will be taxed at the personal marginal tax rate with 15% tax credit and the portion paid from the tax free component will be tax free.
TRIS also kept the minimum and maximum payments whereby the person up to age 65 has the minimum pension payment of 4% of the account balance and maximum pension of 10%. (For more information please click here).
The main attribute that the TRIS lost is that the earnings within the pension is no longer tax free and it will be taxed the same as the accumulation portion.
The TRIS doesn’t count towards the $1.6 million pension limitation. (For more information please click here).
From a financial planning point of view the usage of TRIS can still add benefit in helping with the contribution strategies. With removal of the 10% contribution rule there are some new opportunities for tax savings and super contributions. (For more information regarding the 10% rule please look at our article July 2017 Superannuation Changes).
TRIS also have some usage in the situation where a person needs access to their super and they have reached the preservation age but not the condition of release.
The scenario where the post July 2017 TRIS lost its advantage is in the tax on earnings within the pension.
Exempt Current Pension Income Stream (ECPI)
The ECPI has the same attributes and structures to the Account Based Pension which was the main pension prior to July 2017. This includes the minimum pension requirement based on age. (For more information please click here) and the maximum can be up to 100% of the account balance.
It can only be established with superannuation money which met the condition of release. Including attaining age 65, permanent incapacity and retirement in or after preservation age. To read more please click here.
With regard to the tax treatment of the pension payment it is tax free post age 60 and prior to age 60 there will be tax on the taxable source. (For more information please refer here).
It is important to keep in mind that to establish the ECPI prior to age 65 a person must meet the condition of release as discussed above.
ECPI also kept the attribute of tax free earning within the pension (unlike the TRIS).
The ECPI count towards the $1.6 million pension limitation. To read more please click here.
From a financial planning point of view there is obvious preference to use the ECPI type pension over the TRIS type pension if possible.
The government amended the law to allow for TRIS to adopt the ECPI's more favourable tax treatment without the need to re-establish the pension. This can occur in the situation where the superannuation benefit used to start the TRIS met the condition of release. There are several matters that need to be looked at when considering changing the TRIS to ECPI.
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It's also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.