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NEW SMSF pension kits for ABPs and TRISs

By Riley Jones

We are pleased to announce that we can now prepare complete pension kits for clients starting account based pensions (ABPs) and/or transition to retirement income streams (TRISs), in which we can fully complete the details of the relevant fund and member (based on your, or your client’s, instructions).

Despite the recent superannuation reforms, and the introduction of the new transfer balance cap, starting an ABP is still very tax-effective, since the income from the assets supporting the ABP (i.e., basically up to $1.6 million from 1 July 2017) can still be fully tax-exempt.

Unfortunately, the income from assets supporting a TRIS is no longer exempt from tax from 1 July 2017 (unless the member has reached age 65, or has otherwise satisfied a full condition of release and notified the trustee of the SMSF in writing).

However, it is important to remember that there are several benefits that can still be obtained from the payment of a TRIS.  As a starting point, commencing a TRIS allows a member to access their superannuation while continuing to work, which can of course assist with cash flow needs (e.g., mortgage repayments and ongoing cost of living). In addition, accessing superannuation under a TRIS in combination with a salary sacrifice strategy can be very tax-effective, particularly for members above age 60.

Not only that, but the ‘proportioning rule’ still applies when a TRIS is commenced.  That is, TRIS accounts are subject to the proportioning rule in exactly the same way as ABPs even if the TRIS is not in ‘retirement phase’.  Therefore, the tax-free proportion of the pension interest will be ‘locked in’ on commencement, allowing the tax-free component to grow with fund earnings (i.e., in proportion to the taxable and tax-free components of the TRIS on its commencement), or even, potentially, the receipt of life insurance proceeds (i.e., where insurance premiums have been paid from a TRIS account comprising a significant tax-free component).

Advisers should therefore carefully consider a client’s individual circumstances before dismissing the use of a TRIS for retirement planning purposes.

Don’t forget that advising a client to start a pension is considered ‘financial product advice’. If you are not licensed, you may still order these documents on behalf of your client if your client has simply instructed you to do so, but it will be important to retain records that make it clear that you have not provided any financial product advice in this regard.  Note that we have prepared sample letters for this purpose available free of charge (i.e., making it clear to the client that you have not provided financial product advice, and asking them to confirm this with their signature). We are planning to put these on our website shortly, but, in the meantime, please contact our friendly staff if you would like us to email you these sample letters.

More information can be found under SMSF Pensions in our online knowledge base.