An SMSF specialist has warned practitioners to be cognisant of a situation with regard to transition to retirement income streams (TRIS) and their possible influence on an individual’s personal transfer balance cap (TBC).
Accurium superannuation adviser Natalie Scott noted a situation that catches out many individuals is when the treatment of a TRIS automatically changes when the recipient reaches a condition of release.
“One thing we see where some clients potentially get trapped is where they have a TRIS that is not in retirement phase. So they’re running a TRIS, there is no restriction on that, and they don’t get ECPI (exempt current pension income) deductions,” Scott told attendees of an Accurium technical webinar hosted today.
“So once they’ve met preservation age, and assuming the trust deed allows it, they can commence a TRIS that’s not in retirement phase and take out between 4 and 10 per cent of the balance,” she added.
“The really tricky thing here is once that person meets a condition of release, and it’s usually going to be [satisfying the definition of retirement] or attaining age 65, that TRIS will automatically convert to a TRIS in retirement phase,” she explained.
“So if you’ve got a client in that scenario and they’re turning 65, which is probably going to be the most likely one that will trip people up before the end of the financial year, then they’re automatically going to have a personal transfer balance cap [at that time].”
According to Scott this will affect the extent to which they will be able to take advantage of the indexation occurring on 1 July 2025 taking the general TBC from $1.9 million to $2 million.
She pointed out there is a solution for SMSF trustees finding themselves in this predicament and that is to commute the original TRIS before they turn 65.
“If that’s the case they won’t have a personal transfer balance cap and you can just have them recommence the pension on 1 July and they’ll get [access to] that $100,000 increase,” she confirmed.
The SMSF Professionals Day 2025 co-hosted by selfmanagedsuper and Accurium will cover pension strategies in greater detail. Please visit https://www.accurium.com.au/smsf-professionals-day/ to register.
