This might involve removing direct stock positions in share investments such as ResMed Inc and Sonic Healthcare – which pay modest dividends – to sharemarket-listed managed investments such as the Plato Income Maximiser or exchange traded funds such as the BetaShares S&P Yield Maximiser Fund.
These funds can generate an enhanced reliable income stream via high-turnover strategies to collect increased dividends or extra income using buy/write strategies involving an exchange traded options contract. A buy-write is a strategy where a fund either buys or owns shares that it agrees to sell at a nominated higher price to a buyer under an exchange traded options contract to acquire them at that price. These are examples of only a strategy rather than specific recommendations.
Watch out for the tax
Small says care needs to be taken when embarking on such strategies because TRIS pensions don’t enjoy a full tax exemption on investment income so tax can be triggered by implementing these before retirement.
Ideally, Small says he aims to have sufficient dividends and income distributions generated to match or exceed the outgoings of the superannuation fund including pension payments.
With regard to your question about the impact of starting a TRIS on your transfer balance cap entitlement, Tim Miller, education manager at Adelaide SMSF administrator SuperGuardian, says all you need to have done to be eligible to start a TRIS is reach your preservation age of 58.
When you do this, making a withdrawal will have no impact on your transfer balance cap, says Miller. The transfer balance cap is the limit on how much super you can transfer into a superannuation pension that is entitled to tax-exempt investment earnings.
SuperConcepts executive manager Graeme Colley says key changes to super that took effect from mid-2017 applied only to super pensions classified as being in retirement phase.
Excluded from this classification, he says, were TRIS pensions, which need to satisfy other conditions before they become retirement pensions. These conditions include being retired from work or no longer working because of permanent disablement or a terminal illness.
Reaching 65 is another event that will have a TRIS treated as a retirement pension, Colley says. Once it becomes a retirement pension, the pension capital must be counted against the pension cap.
A quirk in the reporting
Miller says a quirk in transfer balance account reporting is that turning 65 automatically converts a TRIS to a retirement phase TRIS, where investment earnings will be tax-exempt. But in the case of retirement and incapacity, the TRIS is converted only once a member notifies the trustee of the fund.
While this may seem like semantics for an SMSF, he says, it can aid in a smooth transition from a taxable pension arrangement to a tax-exempt environment and ensure that no excess transfer balance tax is calculated.
Miller says that when you start your TRIS at 60 after reaching preservation age but before satisfying a condition that allows you to withdraw your total super balance, your TRIS is deemed to be in the accumulation phase and as such does not have any impact on your transfer balance cap limit of $1.6 million.
Starting a TRIS in accumulation with greater than $1.6 million will have no transfer-balance ramifications as the fund is not entitled to claim exempt income.
Financial planner Matthew Scholten, practice principal at Scholten Collins McKissock in Melbourne’s Surrey Hills, says that despite the 2017 investment earnings tax changes on TRIS pensions, they can still be of value.
Although TRIS strategies are not as common, they can be used in circumstances where a pre-retiree needs income to help in meeting living expenses or expenditure – particularly where people have moved to part-time work after reaching preservation age. This will result in investment earnings being taxed at the same rate as accumulation funds. Where someone is more than 60, no tax is payable on pension payments.
Starting a TRIS over the age 60 and re-contributing any excess pension payments as after-tax non-concessional contributions is a strategy that can increase the “tax-free” portion in a super fund. This may ultimately reduce the amount of tax paid on death where funds are paid to adult child beneficiaries.
Scholten says TRIS pensions can be used in a debt-reduction strategy. Anyone concerned about debt can implement a TRIS to withdraw funds from their super to reduce a mortgage or other debt.
But this needs to be carefully considered and analysed, he says, given potential superannuation returns and the very low interest rate environment we are in.
Another TRIS-related strategy that some people have been comfortable pursuing is increasing concessional contributions, making salary-sacrifice contributions and making non-concessional contributions (after preservation age) comforted by the knowledge that they can trigger a TRIS should funds be required in an emergency or during unforeseen circumstances.
— to www.afr.com
