Superannuation Changes 2017- New transfer balance cap for retirement phase accounts

From 1 July 2017, there is a limit on how much of your super can be transferred from your accumulation super account(s) to tax‐free ‘retirement phase’ account(s) to receive your pension income.

This information is for people who:

  • Are retired and have $1.6 million or more in their retirement phase super accounts
  • Are making plans for how they will use their accumulated super when they retire.

What you need to do from 1 July 2017

Situation1: If you retire and commence a new income stream from your super THEN your transfer balance account begins on the day you transfer super assets into a new retirement phase account to start a pension. You should not transfer more than $1.6 million.

Situation 2: If you are already (prior to 1 July 2017) receiving an income stream from your super THEN your transfer balance account begins on 1 July 2017 and you need to ensure you start under the cap and don’t subsequently exceed the cap by transferring too much more in.

If, on 1 July 2017, you are over your $1.6 million cap by less than $100,000 and you remove this excess by
31 December 2017, then you will not have to pay excess transfer balance tax or account for notional earnings
on the excess.

Situation 3: If you are receiving certain capped defined benefit income streams THEN If your income exceeds the defined benefit income cap ($100,000 per year
in 2017–18), you will need to lodge a tax return if you are over 60, and may have to pay tax on the payments you receive. Your fund may withhold amounts from your payments (PAYG withholding).

Situation 4: When you are receiving an income stream from your super THEN Keep track of your transfer balance account to make sure you do not exceed the cap. You need to manage your transfers into retirement phase. For example:

  • If you have available cap space, then you can transfer more (for example, by commencing a new pension)
  • If you have no cap space, you cannot transfer more into retirement phase.

Case study 1

Main points

  • 60 years old
  • About to retire
  • Accumulated super balance is $1.5 million

Example: Alex plans to retire during 2017–18. The new transfer balance cap will not affect Alex, as the value of super interests that he will transfer to support his new income stream will be within the cap.

If Alex starts an account‐based pension valued at $1.5 million, he will still have $100,000 available cap space. Even if the value of Alex’s pension grew due to investment earnings, the amount of available cap space ($100,000) would not change.

Case study 2

Main points

  • 65 years old
  • Retired
  • $2 million in retirement phase account

Example: Agnes is retired and has $2 million in her account‐based pension account (being a retirement phase account). Before 1 July 2017, she decides to transfer the $400,000 that is in excess of the $1.6 million cap into her accumulation account to ensure she is under her cap.

Her fund transfers $400,000 in shares to support her accumulation account. The fund can elect to apply CGT relief to the transfer to reset the cost base of the shares. CGT relief is available if the fund held the shares throughout the period from 9 November 2016 to 30 June 2017.

Case study 3:

Main points

  • 62 years old
  • About to retire
  • Accumulated super balance is $2 million

Example: Sue retires on 1 November 2017 and will receive an account‐based pension. Her accumulated super balance is $2 million. Sue can transfer $1.6 million into a retirement phase account to support her pension income stream without exceeding her transfer balance cap. She can keep the remaining $400,000 in an accumulation account.

Alternatively, Sue may choose to remove the excess $400,000 amount from super and receive it as a cash lump sum. While Sue will not have the ability to make additional contributions into her retirement income account, her balance will be allowed to fluctuate due to earnings growth or draw‐down of pension payments.