Despite some of the predictions in the lead up to the budget about the government introducing a freeze on the indexation of the general transfer balance cap, Smarter SMSF chief executive Aaron Dunn said there was no measure like this announced in the budget last week.
“There was some concern that Labor may look to put a freeze on cap indexation that allows for individuals to increase the amount of super that can be moved into the retirement phase,” explained Mr Dunn.
However, with the general TBC now looking more likely to index to $1.9 million due to the current rate of inflation, Mr Dunn said Labor might still decide to introduce a freeze on this indexation which would apply from next financial year.
Mr Dunn noted that while indexation is based on the All Groups CPI figure for the December quarter and is usually announced around late January, it doesn’t actually apply till 1 July.
This means that Labor would still have time to implement a freeze on any indexation of the general TBC in the May budget next year.
In a CFS FirstTech podcast in August, Colonial First State senior technical analyst Peter Wheatland said that in order for the general TBC to be indexed to $1.8 million from next financial year, the All Groups CPI figure for the December quarter would need to reach 123.8 or higher.
The latest All Groups CPI Figure for the September quarter was sitting at 128.4 per cent.
Mr Wheatland reminded advisers that when it comes to the client’s personal TBC, it’s only the amount of the cap that they’ve never used before that will receive the indexation.
“So, if you’ve got clients who are looking to transfer funds into a retirement phase income stream this financial year, and they’re likely to be limited by the transfer balance cap at some point in the future, then you should consider whether it’s worthwhile delaying the commencement of the pension until next financial year because that will maximise their personal transfer balance cap indexation,” he suggested.
“Advisers would of course need to weigh the benefit of delaying [the pension] against the fact that the investment earnings will be subject to tax up to 15 per cent whilst the funds remain an accumulation phase.”
