A transition-to-retirement income stream (TRIS) in retirement phase should not be regarded as the equivalent of an account-based pension (ABP) even at the time of death of an SMSF member, and any conversion from one to the other is only possible by a strict process, a technical expert has stated.
Smarter SMSF chief executive Aaron Dunn said he still heard from SMSF advisers and members who were considering the conversion of a TRIS into an account-based pension, but this was not possible, despite many people regarding them as interchangeable.
“A TRIS is always going to be a TRIS and I still hear a few times a year about this concept of moving a TRIS into an ABP,” Dunn said during a webinar today, pointing out the two vehicles acted the same, but only after undergoing a conversion process.
“A TRIS in retirement phase and an ABP are ultimately one and the same, however, the ATO has made it abundantly clear that if you want to convert a TRIS to an ABP, it can only be done by way of commutation and repurchase.”
He also noted a TRIS would remain unchanged without the commutation and repurchase process, even if the member died.
“A TRIS on death doesn’t convert an ABP; it simply just moves into the retirement phase,” he said.
He said without this process the TRIS only remained in pension phase and that occurred in different ways for members below or at age 65.
For those under 65, moving the TRIS into retirement phase requires meeting a condition of release, such as retirement, permanent incapacity or terminal illness, and notifying the trustee of that decision, while for those who turn 65 the shift into retirement phase is automatic and triggered by that birthday.
“So, note the importance of planning forward in the lead-up to age 65 because the TRIS will move automatically to retirement phase versus any point in time up to age 65 where there is a stepped process of notification and then the decision by the trustee to accept that change and their notification back to the member,” Dunn said.
“Documentation here is absolutely critical. Make sure you’re looking at that retirement definition and the particulars of any related-party arrangements.”
He added any work arrangements where effort and exertion being put in by the member remained, but the remuneration structure had changed, would mean they had not actually retired and would also fail to meet a condition of release.
