Transfer Balance Cap explained
Will you be affected on 1 July?
On 6 February we reported that Consumer Price Indexation of the $1.7 million super Transfer Balance Cap means it will increase to $1.9 million on 1 July.
That change has now been confirmed and it will make a major difference to retirement incomes for many Australians.
So what is the Transfer Balance Cap? And how likely is this increase to change your income?
Defining the Transfer Balance Cap
A Transfer Balance Cap is the ‘lifetime limit on the total amount of capital that individuals can transfer into the retirement phase to support super income streams.’ This cap was introduced on 1 July 2017 at $1.6 million, and due to CPI indexation, rose to $1.7 million on 1 July 2021.
Why is it changing again?
As measured by the CPI, increases to the cost of living are used as a factor to index retirement income, including the Age Pension and the amount you can transfer to your income stream account. This indexation is a recognition of the fact that retirees need more income to cover regular household expenditure, be they recipients of government benefits or self-funded.
Will this change your situation?
This depends upon whether your super is in accumulation or decumulation mode as well as your current Transfer Balance Account Balance.
If your super is still entirely in accumulation (i.e. you are most likely a pre-retiree), you will benefit from the new cap of $1.9 million, as, from 1 July, you will be able to transfer an extra $200,000 into a retirement income stream if you have reached Preservation Age. Investment earnings in retirement income streams are not taxed.
If you have already commenced a retirement income stream and have transferred the previous maximum amount (either $1.6 or $1.7 million), you will not benefit from the upcoming increase.
If you have already commenced a retirement income stream, but with an amount below the previous cap, you may benefit from a proportionate adjustment. This depends upon a number of factors, including the nature of the retirement income stream and your current Transfer Balance Account balance.
Do you need to act?
A record of your current balance is available on the ATO section of the MyGov website.
With reference to the upcoming change, the ATO notes that, while indexation will occur on 1 July 2023, it won’t be displaying member’s personal transfer balance caps until 11 July 2023. When you have confirmed your personal transfer balance cap you will either have used the full amount in your super pension, or you may have room to transfer more.
Maximising your retirement income streams
After saving hard during a lifetime of work, when we enter retirement most of us want our money to work as hard as we have. Ensuring you obey the rules around retirement income streams, in particular, correctly managing the transition to an Account-Based Pension is critical to ensuring sufficient cashflow. If you need more support on how to take the changes to the Transfer Balance Cap into account, then our tailored superannuation advice consultations will enable you to get the answers you need.
What do you think about this change?
Is it going to change your own situation?
Or is it only for a small group of retirees?
Why does it not apply to those who have already commenced a retirement income stream? Seems unfair. Inflation applies whether you’ve started retirement phase or not.
This will affect only a small number of retirees, we are self funded but do not have that kind off money nor do we know anyone that has
I am 66yo and get invalidity defined benefit PSS of $55k per annum. I will get $1.3 million from property sale so can any of that go into superannuation ie Am in PSSap. And what is annuity income stream. Income is principle + earnings or earnings only from principle
Hi George, thank you for reaching out, it sounds like you have allot to consider and decisions to make. I would be happy to help you understand the rules about contributing into superannuation, what annuities are and potential eligibility questions relating to Age Pension benefits, in either our General or Strategy consultations. Click here to book. I look forward to helping you further, Megan
I transferred $1.6m in 2017 when I retired.
I do not need the amount of the 5% minimum drawdown.
If I transfer some funds into an Accumulation Account to reduce my minimum drawdown, am I able to transfer funds back into my Income Account in a few years time?
Or will I be prevented by having already transferred my maximum allowed amount?
Hi Allan, generally a commutation or rollback to an accumulation phase account is considered a debit from a Transfer Balance Cap. To understand more about what is a credit vs debit and how this relates to a Transfer Balance Cap, also an opportunity to discuss some strategies you might be able to implement to help manage this, while considering some of the trade-offs associated – Our Financial Advisers can address these in our Understanding More about super consultations which you can book by clicking here.
I have draw a regular income from my superfund for me and my wife. I have been told that I cannot pay more into my current fund to increase the balance ifI have additional funds available to me. Is this true?
Hi George, thanks for seeking clarity! When it comes to the rules and regulations of superannuation there are a few ifs, buts and maybes to take into consideration. We’d be happy to help you but would need to speak with you confidentially to understand your specific situation and provide you the right guidance. To book a consultation, please CLICK HERE.