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Existing retirement structures faced with new restrictions

Katarina Taurian
04 May 2016 — 1 minute read

The government has put forward a proposal that will see transfers to pension accounts restricted compared with current levels and, importantly, the measure does not grandfather existing arrangements.

From 1 July 2017, the government plans to introduce a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into pension phase accounts.

“This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation. A balance of $1.6 million could support an income stream in retirement of around four times the level of the single age pension,” the government said.


The government believes this transfer balance cap will affect less than one per cent of superannuation fund members.

It will be applied to both current retirees and to individuals yet to enter their retirement phase.

The SMSF Academy’s Aaron Dunn noted subsequent earnings on these balances will not be restricted, however, this measure significantly limits the extent of exempt current pension income (ECPI) applying to assets supporting the payment of pensions.

“Where a member has a balance in excess of $1.6 million, they will be able to maintain this excess within superannuation; however, it cannot be transferred into the post-retirement cap. As a result of it remaining in accumulation phase, a 15 per cent tax rate will apply to fund earnings the accumulation benefit generates,” Mr Dunn said.

“For members already in retirement phase whose balance is above $1.6 million, they will be required to reduce their pension balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted back to accumulation,” he said.

“Failure to comply with this balance transfer cap will mean that the member will be subject to an excess transfer amount, including on earnings, similar to how the treatment of excess non-concessional contributions tax applies,” Mr Dunn said.

“Everybody has got to reset at 1 July 2017. If you’re in pension phase already and you’ve got $4 million, you have to roll back $2.4 million to accumulation – so you’re effectively re-setting your pension monies at $1.6 million,” he added.

The SMSF Association’s head of policy, Jordan George, told SMSF Adviser that one of the association’s biggest concerns relates to how this measure would be administered.

“Our biggest concern is that it is a complex way of trying to target concessions in retirement phase,” he said.

Existing retirement structures faced with new restrictions
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