Speaking to SMSF Adviser, DBA Lawyers partner Daniel Butler said members who have suffered a hefty decrease, including those in large APRA funds as well as SMSFs, will be particularly annoyed if they were funding a pension such as an account-based pension (ABP) or a transfer to retirement income stream (TRIS) in retirement phase.
“This is because their TBC is a static once-off lifetime amount of $1.6 million and they get punished if the value of their pension assets decrease[s],” he said.
“A debit to a member’s transfer balance account (TBA) can be obtained if they commute a pension back to accumulation phase.”
A TBC example
Mr Butler used the example of Zac, who started an account-based pension (ABP) by transferring $1.6 million towards funding his pension on 1 July 2017. He said Zac’s transfer of $1.6 million would have been registered as a credit to Zac’s TBA and used up his entire lifetime’s $1.6 million TBC.
“Assuming Zac’s ABP was still worth $1.6 million in early February 2020 — e.g. while he has withdrawn a considerable amount of pension payments since mid-2017, on the flip side, his ABP has shown a good increase in value — but his pension assets recently fell by 40 per cent as a result of the jittery stock markets as a result of the global spread of COVID-19 so that his pension assets [are] now only valued at $960,000 (i.e. he has suffered a $640,000 decrease). However, there is no debit to Zac’s TBA on account of this substantial decrease in value,” Mr Butler explained.
“In broad terms, Zac’s TBA has been reduced by $640,000 by a substantial economic correction, and he cannot transfer any further amounts to funding his pension as the TBC is aligned to static amounts which are not adjusted for changes in market value of assets.”
However, according to Mr Butler, when the $1.6 million transfer TBC was set in mid-2017, Treasury noted the following:
Source: Extract from the Exploratory Memorandum of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 supplied by DBA Lawyers
Review what was then promised, says Mr Butler
Mr Butler noted his own involvement with the Treasury consultation of the revised changes introduced by the Abbott/Turnbull government back in 2016, saying the matter was a major concern to industry participants who Treasury consulted.
As a result, he has urged the government to review the TBC rules and provide relief to the many pensioners who are getting hammered by the markets.
“The only concession that was acknowledged from these industry concerns was the comments reflected in paragraphs 3.101 to 3.103 of the Exploratory Memorandum,” Mr Butler said.
“I urge the government to commence the review that was then promised so that those adversely affected by the recent market correction may have the opportunity to replenish some of their retirement savings towards funding a concessionally taxed income stream in their retirement phase.”
will govenment still legislate this financial year on work test to age 67,,
The share market may have dropped by 30%, but a well diversified investment portfolio wouldn’t have dropped anywhere like that. Perhaps now is the time to suggest trustees have a good look at their investment strategy and the reasons for their particular strategy………..they would all have that, wouldn’t they??
There is never any mention of adjusting balances downwards to take into account the 25% plus returns post June 2017 and pre-COVID-19.
For those now below the threshold, drawings are still tax free, tax on investment investment income with attached franking credits is still tax advantageous & 15% tax on accumulation balances is still very concessional.
Everyone has to pay their way in this national emergency.
Down 31.5%. But why not just abolish the transfer balance rubbish and limit the pension income deduction to a tax free threshold per pensioner? Simpler, more logical, fairer and would make a bit of money for the Treasury.
Historical event driven bear markets result in a 29% drop in the markets and returns to previous levels are seen after 15 months.
Obviously past performance is no indicator of future performance, but I don’t think that we need to be making room for people to get more money into pension phase. The majority of retirees have less than $1.6m in superannuation anyway – adjusting the TBC would ONLY benefit individuals who (prior to the downturn) had greater than $1.6m in super.
Doesn’t seem very progressive – I think that the government could direct their attention to many other places that require their help more.
Great, let’s put more burden on the Government coffers. It’s under enormous pressure as it is.
Maybe when their TBC has been extinguished they can apply for the age pension?