The Government has released draft legislation to ensure that a reversionary transition to retirement income stream (TRIS) will always be allowed to automatically transfer to eligible dependants upon the death of the primary recipient.
The measures in the draft bill, Treasury Laws Amendment Bill 2018 – Miscellaneous Amendments – Transition to Retirement Income Streams, have been welcomed by industry commentators.
Tim Miller, principal of Miller Super Solutions says the changes outlined in the draft amendment should be supported. “It will take us back to where we were before June 30 last year,” he says.
A TRIS is a superannuation income stream paid to an individual who has reached preservation age but has not yet retired.
Currently, on the death of a recipient, a TRIS can only revert to a dependant who satisfies a condition of release. Otherwise, the TRIS will cease.
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.
While most superannuation income streams are in the retirement phase when the income benefits are paid, a TRIS is usually in accumulation phase.
The inability of a TRIS to automatically revert where the dependant has not met a condition of release has resulted in administrative difficulties for funds and potentially requires recently bereaved dependant beneficiaries to engage with their superannuation quickly.
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’s underlying superannuation interests.
This approach is consistent with the treatment of other superannuation income streams, which do not require the reversionary beneficiary to satisfy a condition of release.
Speaking at the SMSF Association National Conference in Sydney earlier this month, Miller says the use of a TRIS remains a useful strategy for tapping superannuation tax concessions for anyone who has passed preservation age but is still working.
But he cautions that super fund members need to understand where a TRIS sits in the super framework.
If the fund member has not satisfied a condition of release, the TRIS will be treated as accumulation phase assets. TRIS income will be taxed at 15 per cent and members will not have access to lump sums.
Income paid to members is subject to tax concessions and members can use salary sacrifice to contribute salary into super.