The pension transfer cap on superannuation retirement pensions now apply.
As of July 1st, 2017 the transfer cap on superannuation changed. Here are the main issues you need to be aware of:
- All super fund members who have received a superannuation pension on 1 July 2017 will have a transfer balance cap of $1.6 million created at that time.
- Those not who did not receive 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 computation 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.