Question of the Week

The ins and outs of TTRs and floating rate notes

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Question: Are contributions and rollovers allowed under TTR rules? I have noticed in the ING Living Super this isn’t allowed.

Answer (By Paul Rickard): A Transition to Retirement (TTR) pension cannot be commuted, which means you cannot convert to a lump sum. You can’t withdraw more than 10% of the account balance in any year, and you cannot add to it (by contribution or rollover).

So, essentially what ING told you is correct.

You can, however, have multiple TTRs – there is no limit. Subject to any restrictions by the fund and any potential transaction costs, just commence a new TTR with any rollover.

Question 2: I am a subscriber and would appreciate your valuable opinion on the following scenario: a final QE tapering in October, a reversing of the QE program by unwinding the bonds the FED holds, US interest rising in 2015, probably June quarter, upward pressure on US and global bond yields, mixed outlook on Australian Banks by analysts and possibility of RBA tightening in mid to end 2015.

What impact may this above scenario have on Australian Floating Rate Notes (FRNs)?

Answer 2 (By Paul Rickard): Thanks for the question and very plausible scenario.

FRNs, in general, should not be impacted by a rise in interest rates (as per the scenario you outlined.) However, it is possible that spreads may move out a little if the market starts to feel that higher rates are here to stay, sending FRN prices lower (the opposite of the yield squeeze we have had over the last 18 months or so).

In terms of the individual FRNs in your portfolio, capital or other credit issues could also impact their prices. My sense is that this is unlikely.

Bottom line – I think the impact, if any, will be minimal.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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