The SMSF industry is pleased with Treasury’s proposal for reversionary transition-to-retirement income streams (TRIS) to always be allowed to automatically transfer to eligible dependants upon the death of the primary recipient.
The federal government released this approach in its exposure draft legislation for industry consultation yesterday afternoon.
Currently, a reversionary TRIS cannot transfer to a dependant if the dependant has not satisfied a condition of release.
Miller Super Solutions founder Tim Miller said the consultation highlighted the short-sighted nature of the original law.
“We have gone from an industry position where a reasonable assumption was made that a TRIS converted to an account-based pension on satisfying a condition of release to an overly complex position where we now have a TRIS in accumulation and a TRIS in retirement. This was heightened with death not being included in the conditions for converting to retirement,” Miller told selfmanagedsuper.
“The consultation is a welcome result, albeit something that could have been avoided from the outset.
“It almost doesn’t warrant consultation; just do it.”
SuperConcepts technical services and education general manager Peter Burgess told selfmanagedsuper the consultation paper was a positive development as Treasury had been quiet on the issue over the past few months.
“We currently have this admin burden of having to commute the TRIS and then start an account-based pension, which adds costs and confusion, so in that respect it’s a good development and we’re pleased this is being proposed,” Burgess said.
“So if the client is in a TRIS and they die, assuming this proposal goes through, then the pension will be able to automatically revert to the spouse where they have chosen a reversionary nomination; it all automatically happens in the same way it does for account-based pensions.
“Essentially it will align a reversionary TRIS with other normal account-based pensions.”
If legislated, the measure will apply to reversionary TRISs from 1 July 2017.
“The consultation paper said it would be backdated to 1 July 2017, which is when the government introduced the TRIS in retirement-phase status, and it appears that classification isn’t needed anymore given a reversionary TRIS will work in the same way as a normal account-based pension,” Burgess said.
The SMSF Association also commended the government for its provision amendment.
“It ensure that reversionary TRISs are afforded as 12-month delay for the transfer balance credit to occur on the death of an individual, giving the beneficiary the necessary time to get their affairs in order,” association chief executive John Maroney said.
“As the association said in its budget submission: it gives beneficiaries 12 months before the pension is credited to their transfer balance cap, reduces documentation and compliance burdens, and rightfully places these pensions into the same legal position as reversionary account-based pensions.
“We look forward to making a submission on the draft legislation and call for the remainder of our super red-tape issues in our pre-budget submission to be actively considered.”
Allowing a TRIS to automatically revert in all cases will simplify administrative processes for super funds, Revenue and Financial Services Minister Kelly O’Dwyer said yesterday.
“It will also make it easier for superannuation members by eliminating the need for recently bereaved dependants to quickly engage with the super affairs at what is a particularly difficult time,” O’Dwyer said.
She added the removal of the condition of release requirement will better align a reversionary TRIS with other reversionary income stream products, reducing administrative complexity and confusion.
“This technical change is further evidence of the government’s commitment to ensuring the smooth implementation of the 2016/17 budget super taxation reform package,” she said.
Submissions are invited by 23 February.