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Super Reforms – Impact of $1.6 million pension transfer balance cap

Super Reforms – Impact of $1.6 million pension transfer balance cap

While the introduction of a $1.6 million pension transfer balance cap will not affect many Australians, key changes will need to be made if you are impacted.

The rules to ensure people don’t transfer more than $1.6 million from the ‘accumulation’ phase of super into the ‘retirement phase’ (otherwise known as a superannuation pension or income stream) are quite complex and beyond the scope of this booklet to explain in any detail.

There are, however, a few key things to keep in mind.

Few people will be impacted

The Government has indicated that less than 1% of Australia’s superannuation account holders will be affected by the transfer balance cap of $1.6 million 10. $1.6 million can provide a generous retirement income

A superannuation pension of $1.6 million could generate an annual income of:
1. around four times the level of the single age pension11, and
2. almost three times the ‘comfortable’ lifestyle standard identified by the Association of Superannuation Funds of Australia 10. Couples can have $3.2 million in pensions Up to $3.2 million may be transferred to pensions by a couple, as the $1.6 million pension transfer balance cap is a per person limit.

Contribution splitting could be a good strategy

Where one member of a couple holds the majority of the superannuation and that person has (or will) accumulate more than $1.6 million in super, splitting up to 85% of the previous financial year’s concessional contributions with their spouse who has less super could increase the combined amount that could be transferred into pensions.

Accumulation phase is still tax-effective

Amounts exceeding the $1.6 million transfer cap won’t have to be withdrawn from the super system. The excess amount can stay in the ‘accumulation’ phase where earnings are generally taxed at 15%, but in most cases the actual tax rate paid is a lot lower when deductible expenses, franking credits and other items are taken into account in the fund.

Seek advice

If you think you might be impacted by this measure, contact us on 0883620060. It is important to consider the changes as your super fund may be eligible for capital gains tax relief depending on steps you take prior to 1 July 2017.

Reforms at a glance

Key Opportunities

Implications for transition to retirement pensions

Impact of the $1.6 million pension transfer balance cap


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