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  • Innovative retirement income stream products for SMSFs

    The term innovative retirement income stream covers a range of lifetime products that did not meet the annuity and pension standards prior to 1 July 2017. There are several key elements that must be met for a retirement product to be considered an innovative income stream. These are:

    • similar to an ordinary account-based income stream, the fund is not able to start paying benefits until the individual has met a nil-cashing restriction condition of release. However, the difference with these products is that the start date for benefit payments is often deferred until a later event, usually age-related. This is built into the terms and conditions of the product
    • once benefit payments start, they must be made at least annually and be payable for the individual's remaining lifetime (and any primary or reversionary beneficiaries). There can be no unreasonable deferral of payments from the income stream after the benefit payments have started
    • restrictions on the amount that can be commuted to a lump sum or for rollover purposes, which apply after the income stream is in the retirement phase. The restrictions are based on a declining capital access schedule.

    SMSFs will not be able to develop an innovative retirement income stream product themselves, but they will be able to purchase one from a life insurance company for the benefit of their members.

    Previously, a fund was only able to claim exempt current pension income (ECPI) if it was making income stream payments. However, under the innovative retirement income streams rules, funds are able to claim ECPI on income from assets they hold to support innovative retirement income streams where the individual for whom the interest is held is in the retirement phase.

    The value of these products at the time ECPI can be claimed will need to be reported for the transfer balance cap. You will need to be able to identify and report account balances for these new products.

    Last modified: 12 Apr 2018QC 51307