Utilising TRIS strategies ahead of TBC indexation

In contrast to other conditions of release stated above, there’s no requirement to notify the super fund under the “attaining age 65 condition”, according to Colonial First State. A TTR pension will automatically be converted to a retirement phase income stream once the member turns 65.

CFS technical specialist Linda Bruce said once a TTR pension is converted to a retirement phase income stream, the pension balance on the day of the conversation will be credited to the member’s transfer balance account and count towards the member’s pension transfer balance cap, and the investment earnings on assets supporting the pension will be tax-exempt.

“If the TTR pension balance exceeds the individual’s pension transfer balance cap, the excess should be removed from the TTR income stream before the TTR pension is converted to the retirement phase to avoid breaching the transfer balance cap,” she said in the CFS strategic update.

“This can be done by rolling the excess amount back to the accumulation phase, as an example.”

As a result, if a client has a TTR income stream, it is worthwhile reviewing their retirement plan and checking the date of their 65th birthday, according to Ms Bruce.

The general transfer balance cap is due to be indexed to $1.7 million from 1 July 2021. However, a client’s personal transfer balance cap is indexed based on the unused portion of their personal transfer balance cap.

Ms Bruce said this creates a flow-on effect for the SMSF’s TRIS and personal transfer balance cap indexation, as the unused portion for the personal transfer balance cap indexation is determined by a client’s highest-ever transfer balance account value at the end of any day prior to 1 July 2021.

This means if a client can defer receiving a credit in their transfer balance account to or after 1 July 2021, they may be able to have a higher personal transfer balance cap when the indexation occurs.

“If a client with a TTR income stream is retiring between now and 30 June 2021, the client may be able to access a higher personal transfer cap by delaying their retirement to or after 1 July 2021,” Ms Bruce said.

“If a client is turning 65 before 30 June 2021, it may be beneficial to roll the TTR pension back to the accumulation phase prior to their 65th birthday. The client can then commence a retirement phase pension on or after 1 July 2021.”