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Remember the Transfer Balance Cap?

Date: 21 January 2019

What is it?

It’s a lifetime limit on how much of your superannuation balance you can transfer from your accumulation account(s) to tax-free ‘retirement phase’ account(s) that allows you to receive pension income.. This limit is known as the ‘transfer balance cap’. The transfer balance cap is currently set at $1.6 million per person and individual’s transfer balance caps will be maintained by the ATO. There is no limit on the amount of money you can keep in your accumulation superannuation account(s).
The balance of any retirement phase income streams (unrestricted pensions) at 30 June 2017 are automatically counted towards individuals transfer balance caps on 1 July 2017 and any new pension accounts created or pension cancelled from this date will adjust individual’s transfer balance caps.
In short there is a lifetime limit (cap) placed on how much individuals can have in tax free retirement income phase.

Some things to consider are:

  • The main items that increase or decrease an individual’s transfer balance cap is money used to start or cancel pensions. Earnings and pension payments are ignored so even if your pension balance grows to be greater than transfer balance cap through earnings, this is allowed.
  • You must advise (via your superfund) the ATO when you start pensions or cancel pensions;
  • There is a limit to how much you can put into pension phase;
  • If you have a partner, there are benefits to keeping your balances even so that you can both utilise your individual transfer balance caps;
  • Further if you have a partner, there are benefits to keeping your super balances even for estate planning purposes as if one partner passes away there could be options to retain a greater amount in the superannuation environment;
  • Where you pay over the minimum pension payment requirements it may be beneficial to treat these as small pension cancellations (termed partial commutations in the industry) to reduce your transfer balance cap;
  • There are penalties for going over your transfer balance cap;
  • Defined benefit pensions (mainly some types of government pensions) have special rules to determine the amount that is counted towards a person’s transfer balance cap.

Example

John is 60 years old and plans to retire. His accumulated super balance is $1.5 million. If he starts an account-based pension valued at $1.5 million, he will still have $100,000 available in his cap. Even if the value of Ben’s pension grew due to investment earnings, the amount of available cap space ($100,000) would not change. This is a simplified summary and any actions should be made based on your personal circumstances in consultation with your Roberts & Morrow adviser.
The earlier retirement planning is started the better as it can be difficult to move superannuation between partners and make the most of opportunities.

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