Transition to Retirement Income Streams – Important Update

Earlier this month the Australian Government released a consultation paper containing proposed amendments to TRIS legislation, which if implemented would be backdated to 1 July 2017.

Why is this happening?

Pre 30 June 2017

It was common practice to simply convert a transition to retirement income stream (TRIS) to an account based pension (ABP), when a condition of release had been met. It was a shock to the industry when the ATO confirmed this was not the case, and in order to access an ABP, the TRIS had to first be commuted and then purchase an ABP.

Post 1 July 2017

The super reforms brought to light an array of issues about accessing a tax-exempt income stream when a condition of release had been met. Specifically in the scenario with reversionary TRIS, the beneficiary would only be able to receive the pension if they had met a condition of release.

This reason behind this was that on the death of a recipient, a TRIS can only revert to a dependant beneficiary who satisfies a condition of release. This is because a member’s superannuation interests can only be paid as a superannuation income stream if the income stream is in the retirement phase and paid to a dependant beneficiary (see regulation 6.21 of the SIS Regs for the rules about compulsory cashing of benefits on death).

What are the proposed changes?

To address this administrative issue, the government release a consultation paper on 12 February 2018.

The proposed amendments modify the rules that determine when a TRIS is in the retirement phase to ensure that a reversionary TRIS can always be paid to a reversionary beneficiary regardless of the beneficiaries age. The change will allow the original TRIS to be paid to the dependant beneficiary rather than having to be commuted and a new income stream started from the deceased member’s underlying superannuation interests.

If the proposal succeeds, it will be backdated to 1 July 2017, which is when the government introduced the controversial TRIS in retirement phase status, restricting the automatic change to an ABP.

The proposal would also ensure that reversionary TRISs are also provided with the 12-month grace in relation to assessing the reversionary TRIS under the beneficiaries transfer balance cap, which will reduce the administrative issues and the need for the beneficiaries to act quickly after a life event under the current legislation.

Find out more

Leading SMSF specialist, John Lethbridge, will be one of the expert presenters at our upcoming Super Days next month, where we will help practitioners understand the latest legislative changes and how to meet the changing needs of your SMSF clients.

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This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.