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  • Transfer balance cap changes

    In December 2019 a number of changes were made to the transfer balance cap measure.

    New, retrospective, debit when a defined benefit income stream reduces in value

    A new debit occurs in a member’s transfer balance account if the value of a defined benefit income stream is reduced for reasons other than a recalculation of payments, a partial commutation or cessation of the original interest.

    For example a reversionary defined benefit pension paid to a surviving spouse is initially the value of the full amount paid to the deceased, but decreases after a prescribed period of time or when a child ceases to be a dependant.

    The value of the debit is the special value of the income stream just before the reduction in value, less the special value of the income stream just after the reduction.

    The legislation is retrospective and a debit will arise in the member’s transfer balance account in these circumstances from 1 July 2017.

    We'll be starting formal consultation on guidance about changes for all our fund reporting documents to allow funds to report the new debit to us as a member commutation (MCO) event.

    Providers and their administrators should review their products and identify if they have any members who may incurred this debit and engage with us about when they will be able to report the new debit to us on an on-going basis, when they may be able to report any retrospective debits and to ensure the ATO and the provider can provide consistent messaging to members.

    Successor fund transfer

    Amendments to the definition of a capped defined benefit income stream ensures that an income stream which was a capped defined benefit income stream before being commuted as part of a successor fund transfer (SFT) arrangement, remains a capped defined benefit income stream after the SFT.

    Innovative retirement income stream products

    There have been two adjustments to how these products relate to the transfer balance cap:

    • a credit rises in the individual’s transfer balance account when an instalment payment is made which increases the value of the income stream after it's started to be in the retirement phase. We intend to start formal consultation on guidance changes to allow funds to report this credit to us as a Super income stream (SIS)event
    • the way the value of the debit that arises in an individual’s transfer balance account is calculated when the income stream stops being in retirement phase because the provider has failed to comply with a commutation authority has been amended to address a technical defect.

    In addition, a minor technical defect in the way the maximum commutation amount for an innovative retirement phase income stream is calculated was corrected to properly consider leap years for products that apply on anniversary dates such as life annuities.

    Next steps:

    • For the debit changes:
      • review your products and contact us if you think you have members who are entitled to the new debit. We expect only a small number of funds will be affected by this change
      • note that changes to our reporting guidance will be being made to allow reporting of this debit.
    • For the SFT changes: note the changes and engage with us if necessary.
    • For the Innovative retirement phase income stream changes: note the changes and incorporate these, and their reporting obligations, in your planning if you're looking to provide one of these products in future.

    See also:

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      Last modified: 24 Feb 2020QC 61512