"TRANSITION TO RETIREMENT" PENSIONS TO BECOME MORE SIMPLE

The government has released exposure draft legislation to ensure that a superannuation reversionary transition to retirement income stream (TRIS) will always be allowed to automatically transfer to eligible dependants on the death of the primary recipient. The amendments are designed to remove a trap in the current legislation that has created administrative difficulties for some funds.

Currently, a reversionary TRIS cannot transfer to a dependant if the dependant themselves has not satisfied a condition of release under the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs). This is because the primary member’s superannuation can only be paid as an income stream if it is in the “retirement phase” and paid to a dependant beneficiary. Of course, where a reversionary TRIS currently cannot be paid for that reason, a deceased’s super can still be paid to a dependant beneficiary as a new income stream without them satisfying a condition of release in their own right. However, having to commute the original TRIS and commence a new income stream is inconvenient, requires immediate action on the death of the member and may cause uncertainty.

The draft legislation would amend s 307-80(3) of the Income Tax Assessment Act 1997 with effect from 1 July 2017 to 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. The amendment will allow the original TRIS to be automatically paid to the dependant beneficiary, eliminating the need to commute the original pension and start a new income stream from the deceased member’s underlying superannuation interests.

The proposed change also means that the reversionary beneficiary’s transfer balance account will not be credited until 12 months after the death of the primary beneficiary. This will give the reversionary beneficiary some time to review their superannuation affairs and take any necessary steps to ensure they will not exceed their transfer balance cap. The amount of the credit is the value of the income stream at the time it first became payable to the reversionary beneficiary (ie at the date of death).

If you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 14 Russell Street Toowoomba.