The impending implementation of the new super rules should be the catalyst for advisers to encourage SMSF members to switch from a transition-to-retirement (TTR) income stream to an account-based pension, a technical specialist has said.
“One of the things I’d be looking to do, and a lot of advisers are looking to do, is where possible convert a TTR [income stream] to a normal account-based pension. Why? Because then I don’t have to worry about the taxation of the income on the assets supporting the [TTR] pension,” Colonial First State First Technical executive manager Craig Day said.
“What you may have here is a lot of people who have started a TTR [pension] in the past that may well have satisfied a condition of release, but they’ve never actually converted it into an account-based pension.”
Day pointed out some individuals with a TTR pension in place may not realise how easy it can be to satisfy a condition of release by meeting the definition of being in retirement, thus making the conversion to an account-based pension less complicated.
“Over age 60 there is a slightly different definition of retirement. So once we get to 60, to satisfy retirement we have to cease an arrangement of employment,” he said.
“You may have clients who have changed jobs, so one day they were working at let’s say CBA and the next day they’re working for Woolworths as an IT person or something like that. If they’re over age 60 they may not think that they’ve actually now satisfied a condition of release, but they actually in fact have because they’ve ceased an arrangement of employment after reaching age 60.”
He clarified if an individual over 60 ended one job but subsequently started another, the superannuation contributions from the new job will be considered preserved benefits and a separate condition of release will need to be satisfied before they can be accessed, but the person’s accumulated savings up until that time can be categorised as unrestricted, non-preserved, meaning a conversion from a TTR income stream to an account-based pension can occur.
To implement a conversion of a TTR pension to an account-based pension, all SMSF members had to do was notify the fund’s trustee in writing that this course of action is being taken because a condition of release has been satisfied, he said.
