The pension transfer cap on superannuation retirement pensions will apply from 1 July 2017.
The main issues you need to be aware of are:
- All super fund members who are receiving a superannuation pension on 1 July 2017 will have a transfer balance cap of $1.6 million created at that time
- Those not receiving a superannuation pension on 1 July 2017, but commence post 1 July 2017, will have their transfer balance cap created when they commence an income stream
- The pension transfer cap amount will be determined by a system of debits and credits which are recorded in a transfer balance account.
- It is important to note that transition to retirement streams are not included when assessing whether someone is in excess of the transfer cap, or required to report the pension to the ATO
- Regardless of whether you have under or over $1.6 million, you will still be required to report your pension as a credit against the $1.6 million.
Reversionary pensions will count towards the cap, but you will have a 12 month period from the date of death to deal with the reversionary pension before a credit arises and counts towards your cap.
Exceeding the $1.6 million transfer balance cap will require the excess amounts to be removed from the retirement phase, which will likely require the commutation of the relevant pension or pensions which has exceeded the cap. You will require guidance on which pension/s to commute or partially commute and from which superannuation fund (if applicable).
The amounts that are commuted back are not required to be cashed out of superannuation and can continue to remain in accumulation phase with earnings on these accounts attracting the standard superannuation concessional tax rate of 15%.
Defined benefit pensions and certain pre-2007 superannuation pensions have special rules for the transfer balance cap recognising their non-commutable nature. If this applies to you, it is important that you get specialist advice.
Approaching 1 July 2017 you may wish to structure your asset holdings to be in a position to optimise the $1.6 million transfer balance cap, especially between yourself and your spouse. You should also consider:
- Whether the type of fund you are in is suitable
- Whether the assets supporting your pension are adequate for your retirement needs.
This is because investment fluctuations of pension accounts credited against the pension transfer cap will not change the amount that can be accessed against the $1.6 million in the future (only credits and debits will).
Credits are defined as:
- The value of super assets supporting income streams on 30 June 2017
- Starting new superannuation income streams from 1 July 2017 onwards
- The value of reversionary income streams where an individual becomes entitled to them.
Debits are defined as:
- Commutations of superannuation pensions i.e. commuting back to accumulation interest or moving from one fund to another
- Structured settle payments contributed to superannuation
- Certain payments arising from family law splits, fraudulent or void transactions.
Capital gain tax (CGT) relief is also a consideration for those in receipt of pensions having to commute assets back to accumulation phase to comply with the pension transfer cap
How can we help?
It is important that you are aware of these changes and how they may affect you, so that you can review your superannuation strategies going forward. Please contact your Partners Wealth Group advisor now on 1800 333 143 to set up a review, to ensure you have the right strategies in place.