SMSFs Innovative Retirement Income Stream
Effective on July 1, 2017, the government has removed rules that restrict the development of retirement products. It has also extended tax exemptions on the fund’s earnings in the retirement phase to innovative products like group self-annuitisation products and deferred lifetime annuities. These changes provide greater choices and flexibility for retirees in managing risks that they outlive of their retirement savings.
Innovative Retirement Income Stream Explained
These retirement product covers a wide range of life products that did not meet the pension standards and annuity before July 1, 2017.
For a retirement product to qualify as an innovative retirement income stream it should:
- Have similarities to a regular account-based income stream or pension. The fund will not be able to pay benefits to members until they have met conditions of release. However, with these products the start date for the payment of benefits is often deferred until a later event, like age-related ones. These are built into the terms and conditions of the product.
- Once payments of benefits start, they must be made at least once a year and payable for the remaining lifetime of the individual or to any primary or reversionary beneficiaries. Unreasonable deferral of benefit payments is not possible once the payment of benefits has started.
- Restrictions apply to amounts for rollover purposes and for them to be commuted to a lump sum. These apply if the retirement income stream is in the retirement stage and restrictions are based on declining capital access schedule.
Impacts for Self-Managed Super Funds
- There is a strong potential in the increase of members investing in new and innovative retirement pension products
- SMSF may not be able to develop innovative retirement pensions on their own but are able to purchase one from a life insurance company for their members.
- Before, funds can only claim exemptions on the pension (ECPI) if it is paying income streams. Today, through innovative retirement income pension rules, funds can claim ECPI on income from assets they have.
- The value of the products at the time when ECPI is claimed should be reported to the transfer balance cap.
- Trustees should identify and report the account balances for these new innovative retirement products.
If you have more questions about innovative retirement income stream or schemes or if you want help from an approved SMSF auditor or professional, talk to us and we are more than glad to help you.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.