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Documentation, Pensions, Retirement

Trust deeds key to TRIS status in retirement

retirement phase TRIS

Trustees should pay attention to SMSF trust deeds to ensure members converting to retirement phase still benefit from TRIS regulations.

Trustees need to reassess their trust deeds in light of transition-to-retirement income stream (TRIS) regulations to avoid problems when moving to retirement phase, according to an SMSF expert.

Smarter SMSF chief executive Aaron Dunn highlighted the ATO’s stance that a TRIS in retirement phase could not be restated as an account-based pension (ABP) and said trustees should understand what the implications were for their fund.

“It is the ATO’s view that an ABP will only be created where a TRIS ceases. It is therefore a conscious decision that needs to be made via a commutation and repurchase of the income stream,” Dunn said, referring to the recently released ATO Guidance Note 2019/1.

“[A] member is going to have to consider whether they wish to continue with a TRIS into the retirement phase or alternatively commute and repurchase as an ABP.”

Dunn recommended funds have a trust deed that provided members with the choice of either shifting their TRIS to retirement phase or creating a replacement income stream by triggering a commutation and rollback of their TRIS.

He also pointed to TRIS regulations that allowed for the 10 per cent maximum pension to fall away when a member satisfied a condition of release to move the benefit to retirement phase. Trustees should pay close attention to their trust deeds to ensure their fund benefited from the new regulations if they pursued that option in the future, he said.

“Whilst the legislation may allow for this to occur, it is important that you also understand what the terms of the trust deed and pension say about the ability to remove any maximum pension restriction with a TRIS,” he added.

He said he had seen trust deeds with TRIS definitions prescribing a maximum of 10 per cent, which meant any member satisfying a condition of release when the benefit moved to retirement phase would still be subject to a 10 per cent maximum until the governing rules of the fund were altered.

“As a result, there are some important decisions to be made at the time when converting to retirement phase and having the account balance count towards a member’s transfer balance cap. Having the right documentation in place forms an important part of this process,” he noted.

The new ATO guidance on whether a TRIS changes into a different kind of superannuation income stream in retirement phase was questioned recently by a legal expert, who claimed there was not a strong basis in the law for the guidance.

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