There seems to be some confusion about the fate of transition to retirement income streams (TRIS). TRISs will not be abolished from 1 July 2017. Rather, they will no longer qualify for “pension phase” (or retirement phase under the new terminology).
This means that assets supporting TRISs will be taxed at 15% on income and 10% on capital gains on assets held for at least 12 months, rather than being tax free as under the current regime.
Transitional CGT relief
Super funds with TRISs are eligible for a cost base reset on 1 July 2017. This is discussed in another update.
Can a TRIS be converted into an account based pension?
If a TRIS can be converted into an account based pension, then, subject to the transfer balance cap measures, the assets supporting that pension will continue to be in pension phase.
TRISs can be converted into an account based pension in the following circumstances:
- Where the member is aged 65+
- Where the member is aged between 60 and 65 – an arrangement under which they were gainfully employed has come to an end or they intend to never again become gainfully employed
- Where the member is aged between their preservation age (currently 56) and 60 – they have ceased to be gainfully employed and intend to never again become gainfully employed
Therefore, where a member is aged between 60 and 65, if a member retires from one position, then they can convert their TRIS into an account based pension (and/or start a new account based pension). This could occur, for example, where a member has a number of active director roles and retires from one of them.
Where a member is aged between their preservation age and 60, or aged between 60 and 65 and has only one role, then they would need to cease gainful employment (ie work for no longer than 10 hours a week) and intend to never be gainfully employed again.
Can a TRIS “auto convert” into an account based pension?
If the TRIS documentation permits it, a TRIS can convert into an account based pension.
If the TRIS auto converts does this mean the TRIS ceases at that time and a new account based pension commences? The answer to that question could have important ramifications for whether the minimum pension payments are made in the year of auto conversion. It could also be important for ensuring grandfathering for Centrelink purposes.
While this question is still being debated, in our view, an auto conversion will not result in a new pension if the pension documents have been drafted correctly.
What if a TRIS cannot be converted into an account based pension?
In such a situation, the TRIS would generally only be maintained for members who want to, or need to, access their super. For other members, the TRIS should be commuted and an account based pension could commence when the member has met a full condition of release (for example, when they turn 65 or have fully retired).
Is your account based pension really a TRIS?
Many account based pensions started off as a TRIS and were treated as having converted into an account based pension. For example, when the member turned 65.
Such account based pensions could technically still be a TRIS. This could have important ramifications. For example, such pensions could cease to qualify for retirement phase on 1 July 2017 or could still have the 10% pension cap.
It is important that such account based pensions be reviewed pre 1 July 2017. If there are any questions about the nature of the pension then consideration should be given to converting them into an account based pension (for example at 30 June 2017).
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