Reversionary TRISs – Government acts to resolve issue

From

Michael Hallinan

The Government has now moved to resolve the issue of reversionary TRISs, which has been dragging on since 1 July 2017 when the “Fair and Sustainable Superannuation” changes commenced.

The reversionary TRIS issue is simply that when a reversionary pension transfers on the death of the primary pensioner, the pension is now a death benefit.  Since 1 July 2017, death benefits can only be paid in pension form if the pension is in retirement phase.  This requires the reversionary beneficiary, being the recipient of the pension on the death of the primary pensioner, to have satisfied an unrestricted release condition – such as being retired for superannuation purposes or having attained age 65.

If the reversionary beneficiary has not satisfied an unrestricted release condition, then the pension could not transfer to the reversionary beneficiary.   The reversionary beneficiary could still be paid the superannuation benefit in pension form, but the TRIS had to be first stopped, (i.e. commuted and rolled back to accumulation phase) and then a new account-based pension issued from the rolled back amount.

Stopping a reversionary TRIS is not only inconvenient but could have potentially significant adverse consequences for Centrelink purposes.  Additionally, as there was a break in the pension, the new pension opening balance would have to be determined and the correct amount of pension payments would have had to be made for the balance of the financial year based upon the attained age of the reversionary beneficiary.

The adverse Centrelink treatment would arise if the reversionary TRIS was commenced before 1 January 2015 and therefore would be assessed under the previous “deductible amount” test and not the deeming test which currently applies.  As a general statement, the deeming test is less generous that the “deductible test”.

Consequently, a reversionary beneficiary who was entitled to the age pension may have had the amount of the age pension reduced or, in extreme cases, eliminated.
The Government took the view that a reversionary TRIS, even if the primary pensioner had attained age 65, retired or died, did not convert into an account-based pension.  As a TRIS remained a TRIS (even though the cashing restrictions had been removed by the primary pensioner attaining age 65, retiring or otherwise satisfying an unrestricted release condition), the pension could only transfer to the reversionary beneficiary if the reversionary beneficiary had also satisfied an unrestricted release condition as at the date of transfer.

The proposed changes mean that a reversionary TRIS can transfer to a reversionary beneficiary even though the reversionary beneficiary has not (at the date of transfer) satisfied an unrestricted release condition (such as attaining age 65 or being retired).

Once the change is implemented (and it is proposed to retrospectively apply from 1 July 2017) then on the death of the primary beneficiary of a reversionary TRIS, the pension can transfer to the reversionary beneficiary as the pension will be treated as being in retirement phase irrespective of whether the reversionary beneficiary has satisfied an unrestricted release condition.

By Michael Hallinan, Special Counsel Superannuation

You must be logged in to post or view comments.