On 1 July 2021, the transfer balance cap will increase to $1.7m from $1.6m that was set on 1 July 2017. So, if you think you now get an extra $100k to start a pension, you would think wrong. The truth is the increase in your client’s cap that is currently drawing a pension is significantly lower and nil in many cases.
Once indexation of the general transfer balance occurs, there will be no single transfer balance cap which applies to all individuals:
An individual who starts their first retirement phase income stream on or after 1 July 2021 will have a transfer balance cap of $1.7 million.
An individual who already had a transfer balance account and who at any time met or exceeded the $1.6 million transfer balance cap will not be entitled to indexation and their personal transfer balance cap will remain at $1.6 million.
For every other individual, their entitlement to indexation will be based on identifying the highest ever balance in their transfer balance account and using this information to calculate the proportional increase in their transfer balance cap and applying that new personal transfer balance cap to their affairs going forward. These individuals will have a personal transfer balance cap somewhere between $1.6 million and $1.7 million.
So how do you calculate the new cap?
You need to calculate the highest ever transfer balance amount or pension commenced, this excludes any commutations. So, if you started an account-based pension of $1.2m at 1/7/2017 and commuted $400k at say 1 October 2020. Your highest transfer balance will be $1.2m not $800k.
Your new transfer balance cap at 1 July 2021 will be determined based on the percentage of the cap you had previously unused and applying this percentage to the $100k increase. So, in this example, an account-based pension of $1.2m has 25% of the original TBC unused. From 1 July 2021 this member receives an additional 25% of the $100k increase. This is a simple example, with the fund’s new TBC limit is $1.625m.
The table below outlines how the cap is calculated based on various pension amounts.
Non-concessional contributions cap changes
The total superannuation balance limit which determines if an individual has any remaining non-concessional contributions available will increase from $1.6 to $1.7 million on 1 July 2021. This also applies to bring forward limits.
However, when the general transfer balance cap is indexed on 1 July 2021, individuals with a total superannuation balance of $1.7 million or more as at the 30 June 2021 will have a non-concessional cap of nil from 1 July 2021.