• Introducing a transfer balance cap of $1.6 million for pension phase accounts

    From 1 July 2017, the government will introduce a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions.

    To provide a broadly equivalent outcome for people over 60 years old, this will also mean a change to the taxation of:

    • lifetime pensions paid under subregulation 1.06(2) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) and annuities paid under subregulation 1.05(2) of the SISR
    • current life expectancy pensions paid under subregulation 1.06(7) and annuities paid under subregulation 1.05(9) of the SISR
    • current market-linked pensions paid under subregulation 1.06(8) and annuities paid under subregulation 1.05(10) of the SISR.

    These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including self-managed super funds (SMSFs).

    The general transfer balance cap will be indexed in $100,000 increments in line with CPI. Indexation will be applied proportionally where a member is a retirement phase income stream recipient, but has not at any time met or exceeded their cap.

    Two law companion guidelines are available:

    • LCG 2016/9 Superannuation reform: transfer balance cap
    • LCG 2016/8 Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds

    Summary of impacts for self-managed super funds before 1 July 2017

    • You will need to help your members understand the likely value of their current or impending pensions as at 30 June 2017 and be ready to assist them to reduce the value of these pensions if necessary.
    • If your members do commute their current pensions and you have assets to move back to accumulation phase, decide if you will apply CGT relief (details for this will be available within one week).
    • You will need to determine if you are currently paying any of the lifetime, market linked or life expectancy pensions detailed above.

    Summary of impacts for self-managed super funds after 1 July 2017

    • There will be new obligations to report information to us when your members start or commute retirement phase income streams (details for this will be available within one week).
    • If you are paying a lifetime pension or are continuing to pay a market linked and life expectancy pension that started before 1 July 2017, you will have new withholding obligations if the member is over 60 years old.
    • If we issue you with a commutation authority to reduce the value of a member's retirement phase income stream, you will have 60 days to comply. If you do not comply with the commutation authority you will not be able to claim exempt current pension income (ECPI) in relation to the income stream. You also have an obligation to comply with the commutation authority under superannuation law.
    Last modified: 16 Mar 2017QC 51298