Traditionally when a transition to retirement income stream (TRIS) reverted to a spouse on the death of the original pensioner, the TRIS status of the original pension was academic. Regardless of how the pension started, the surviving spouse inherited a pension unencumbered by the usual restrictions associated with a TRIS because the death of the original pensioner effectively ‘freed up’ the entire balance to become ‘unrestricted non-preserved’ superannuation.
However, the addition of the ‘retirement phase’ concept on 1 July 2017 added some complexity which currently causes some constraints to remain even after death and changes the position for those transition to retirement pensions that revert to another beneficiary on death.
In what has now been agreed is an omission from the law, under current legislation, any pension that commences as a TRIS does not automatically become a ‘retirement phase’ pension when it automatically reverts to (say) a spouse on the death of the first member of a couple.
Instead, the treatment of the ongoing pension (if it commenced as a TRIS) depends on the age and retirement status of the new recipient (ie the reversionary pensioner). This is the case even if the pension had already become a ‘retirement phase TRIS’ in the hands of the original pensioner before they died.
This deficiency in the current law means that if the person nominated as the reversionary pensioner has not yet retired/reached age 65 etc by the time of the original pensioner’s death, there is an argument that the pension simply cannot revert However, even if the pension is considered to have reverted, the compulsory cashing rules have not been satisfied as the death benefit pension is not a ‘retirement phase’ pension.
This would mean the fund’s eligibility for exempt current pension income in respect of that pension account would cease immediately and the trustee/member would need to act quickly to stop the TRIS and restart a retirement phase pension. But in doing so the member would have lost the benefit of the usual 12 month delay in an amount counting towards their transfer balance cap.
However in a welcome move, the Government has now released draft legislation which if passed in its current form, will ensure that an auto-reversionary TRIS can always be paid to a reversionary beneficiary (provided they are an eligible recipient - eg spouse) regardless of the age or work status of the reversionary beneficiary. There will be no need to ‘stop & restart’ the TRIS, the fund’s eligibility for exempt current pension income will continue uninterrupted and the reversionary beneficiary will benefit from the 12 month delay in their transfer balance cap.
This common-sense change is proposed to apply from 1 July 2017 but is subject to the passage of legislation through Parliament.