Transition-to-retirement income streams (TRIS) are still a useful strategy for pre-retirees and their impact increases over time despite the loss of tax-free earnings that now apply to them, a technical services manager has claimed.
Speaking at the recent Association of Financial Advisers 2020 Roadshow, Challenger head of technical services Andrew Lowe said he continues to receive questions about the benefit of TRIS’s since the changes to superannuation introduced from 1 July 2017.
Lowe said the changes introduced relatively modest concessional superannuation caps and a 15 per cent tax rate, but the usefulness of adopting a TRIS still remained in some cases.
“Swapping taxable income from employment with concessionally taxed income from a TRIS and offsetting the cash-flow difference with concessional or employer superannuation –does this still make sense? It depends,” he said.
He used an example of a 60-year-old woman with a $100,000 salary and $200,000 superannuation balance due to an interrupted work history, pointing out adopting an income swap strategy would result in an additional $3772 going into super without any impact on take-home pay.
This would occur using a $15,500 salary sacrifice arrangement into the TRIS, which alongside a superannuation guarantee amount of $9500, would equate to $25,000 total super contributions, or $21,250 after superannuation contributions tax, compared to only $8075 after contributions tax without the TRIS strategy.
The TRIS strategy, however, would also reduce taxable income from $100,000 to $85,500 and produce a TRIS payment of $9403, taken from the total superannuation contributions, which would be added back to the take-home pay, increasing it to $74,283 – the same amount after marginal tax rates are levied against the $100,000 income.
“Here is the key for me. While keeping the client’s net income after tax identical, that is, we did not affect their spending capability whatsoever, we are able to increase their superannuation by replacing taxable salary with concessionally taxed income from a TRIS, and even with tax on the earnings of the TRIS, we are $3700 better off over one year,” Lowe said.
“If this client was two years out, there is a bigger benefit again and if it was five years or 10 years out, there are significant opportunities to increase superannuation benefits without impacting the lifestyle of clients.”