We asked our own “Super Woman” and manager Hayley Nixon to help summarise and clarify some recent superannuation updates direct from the ATO to our superannuation.
What’s the transfer balance cap and what has it been increased to?
The transfer balance cap began on 1 July 2017. It is a lifetime limit on the total amount of superannuation that can be transferred into retirement phase income streams, including most pensions and annuities. The cap will be indexed to $1.7 million on 1 July 2021. This will be an increase from the current cap of $1.6 million.
How will this effect me?
This will affect different people in different ways depending on the current and historical balances in their superannuation funds. If you start a retirement phase income stream for the first time on or after 1 July 2021, you will have the full personal transfer balance cap of $1.7 million.
If at any time between 1 July 2017 and 30 June 2021 your transfer balance account was $1.6 million or more your personal transfer balance cap will remain at $1.6 million. This applies even if the balance of your transfer balance account is less than $1.6 million on 1 July 2021. An example of this is provided by the ATO is below.
Matthew started a pension in his SMSF valued at $1.6 million on 1 July 2017. Since then, Matthew has been taking all payments from his pension in excess of the minimum pension payments as lump sum commutations.
Just before indexation the balance of his transfer balance account is $1.2 million.
Matthew won’t be entitled to proportional indexation of his personal transfer balance cap. He’ll have cap space available to start a new retirement phase income stream to the value of $400,000.
What if my pension account never reached $1.6 million between 1 July 2017 and 30 June 2021?
Your personal transfer balance cap will be proportionally increased based on the highest ever balance of your transfer balance account. The ATO have provided an example below of this.
Nina started a retirement phase income stream with a value of $1.2 million on 1 October 2018. There are no other events in Nina’s transfer balance account. The highest ever balance in her transfer balance account is $1.2 million.
Nina’s unused cap percentage is 25% of $1.6 million.
Nina’s personal transfer balance cap will by indexed by 25% of $100,000.
Nina’s personal transfer balance cap after indexation on 1 July 2021 is $1.625 million.
Does this indexation increase other caps?
Yes- the indexation increases other caps and limits including the following:
- non-concessional contributions to your super
- a non-concessional contribution to your super and are eligible for a co-contribution
- a concessional contribution to super on behalf of your spouse and want to claim a tax offset.
This could allow you to get more money into your superannuation fund if you have been restricted previously due to having a balance of $1.6 million or more.
You can view all about withdrawing and using your super on the ATO website. Need more info? contact us or your financial planner if you would like to discuss with us how these changes will affect you.