A transition to retirement income stream is not only useful as a source of income before retirement but also effective as a salary sacrifice strategy for higher rate taxpayers. Though a TRIS does not create tax exempt income within the fund the pension payable to a member, of at least 60 years of age, is tax free. This provides the opportunity to salary sacrifice grossed up taxable income to the extent of a member’s available concessional contribution cap. As a TRIS is not subject to the transfer balance cap its starting balance is not constrained by the $1.9m cap but be careful.

Once a member turns 65 the TRIS becomes a standard account based pension and the ATO will automatically apply its balance against the member’s transfer balance cap. To avoid a breach of the cap it’s necessary for any adjustments to be made by that date. The same applies if the member notifies the trustee that they have become permanently disabled or have retired though, as the member needs to advise the trustee before the TRIS is affected, it is unlikely that this would be overlooked in an SMSF.