In an online article, actuarial certificate provider Accurium explained that the total superannuation balance (TSB) is generally calculated at the end of 30 June of each income year and is relevant for working out a client’s eligibility for a range of contributions including the unused concessional contributions cap carry forward and non-concessional contributions.
The TSB is also used to determine whether an SMSF has disregarded small fund assets and therefore is prohibited from using the segregated method to calculate and claim exempt current pension income (ECPI). It will also determine whether the fund may have a choice of how to calculate and claim ECPI from the 2021-22 income year, the actuarial firm stated.
While most of the components for calculating the total super balance are relatively straightforward, valuing retirement phase income streams for TSB purposes can be complex in some cases particularly where legacy pensions are involved, it cautioned.
Accurium explained that retirement phase value is worked out using the individual transfer balance at the end of 30 June. However, this value will be subject to modifications in certain circumstances.
“In particular, a modification occurs where the person has account-based income streams. Instead of using the transfer balance account (TBA) value of the income stream, all debits and credits in relation to the income stream are disregarded and instead the value for TSB purposes is the current value of the interest at the end of 30 June,” the firm explained.
“This current value is the amount that would become payable if you were to voluntarily cease the interest, i.e. generally the account balance for an account-based pension.”
However, other types of income streams retain the TBA value, it explained, such as lifetime complying pensions, flexi pensions and life expectancy pensions.
“It is therefore important to understand what types of retirement phase income streams fall under each definition to determine whether the value for TSB purposes is the actual value of the income stream or the TBA value,” the actuarial firm explained.
SMSF professionals should also be aware that market linked pensions use a modified transfer balance for TSB purposes, even if it is a capped defined benefit income stream, Accurium said.
“A market-linked pension is therefore considered ‘account based’ for the purposes of the TSB valuation. This is irrespective of whether the pension is a CDBIS, and was valued for TBA purposes using a special value,” it explained.
“The current TBA value of the market linked pension is disregarded for TSB purposes and instead the modified amount is used. The modified amount is the amount that would become payable if the member both had the right to cease the interest, and voluntarily caused the interest to cease at that time, i.e. the account balance.”
Accurium said that other income streams in an SMSF, generally known as legacy pensions, for example, flexi-pensions and defined benefit income streams are not included in the list of pensions subject to the modification rule.
“Therefore, the TSB at any given time, again generally 30 June, is calculated using their TBA value,” it said.
“The transfer balance for these income streams is the sum of all transfer balance credits in that account, less any transfer balance debits and does not always equal the account balance at that particular time.”
The actuarial firm gave an example of a member who had a lifetime complying pension at 30 June 2017 and their initial TBA assessment was calculated using the special value formula which determined a TBA credit of $1million.
“The member is now working out their TSB at 30 June 2022. The TSB value is their current transfer balance relating to this income stream which (assuming there were no debits) will be unchanged at $1million. This is regardless of the fact that the current value of the assets supporting the income stream at 30 June 2022 was, say, $1.4million,” it stated.
The TSB value for other income streams does not require a recalculation of the TBA value and therefore does not allow for growth in the account over time or any decreases due to regular payment, it said.
“The TSB of other income streams in an SMSF including defined benefit pensions and flexi pensions retain their current TBA as the value for TSB purposes,” Accurium said.
Very interesting re the assessment of defined benefit income streams for the Total Super Balance. Does this mean that a defined benefit income stream such as a PSS pension will use the Transfer Balance Account value (ie. the starting balance when the person commenced the pension) rather than the current balance – when working out the value for the Total Super Balance?