There are many things to take into account in retirement, and accessing your superannuation is one of them.
Access to your super savings is bound by strict rules – including the transfer balance cap.
But what is the transfer balance cap and what does it mean for you? Here’s what you need to know:
What is the transfer balance cap?
The transfer balance cap is the limit on the amount you can transfer into what is known as a ‘retirement phase’ pension.
It caps the total amount of superannuation that can be transferred into retirement phase income streams, including most pensions and annuities.
All retirement phase income streams, including death benefit income, count towards your transfer balance cap.
Government payments – such as the age pension – and pensions received from foreign super funds are not included in the cap.
What is the transfer balance cap amount?
The general transfer balance cap (for the 2022-23 financial year) is $1.6 million.
If you already have a personal transfer balance account, your cap will be calculated proportionally based on its highest balance. Your cap will not be increased if, at any time before July 1, 2021, the balance met or exceeded $1.6 million.
After that, it gets a little tricky. If you have used only a portion of your transfer balance cap, you will be entitled to a proportional increase to the cap.
You will be able to view your personal transfer balance cap through ATO online via your MyGov account.
How does the transfer balance cap work?
When you first transfer funds from your superannuation accumulation account to a ‘retirement phase’ pension the ATO will establish a transfer balance account for you.
This keeps track of how much you have available within your transfer balance cap and, importantly, by how much you are exceeding the cap.
If an individual reaches their cap, they can’t transfer more of their super into their pension account without exceeding their transfer balance cap. However, they may still be able to withdraw funds from their accumulation super account as a lump sum.
What happens if you exceed the transfer balance cap?
If you exceed your transfer balance cap, you may become liable to pay tax on the amount you are exceeding the cap by if you do not do a commutation as directed by the ATO.
Bear in mind that if you meet or exceed the transfer balance cap, you would permanently lose your entitlement to increase it by indexation in future years.
If you exceed the cap, the ATO states you must commute a portion of your superannuation income stream to reduce the value of your transfer balance account.
Decisions and calculations
The transfer balance cap is a complex area of superannuation and future indexation presents opportunities for some to get more money into retirement accounts but certainly there are detailed considerations and calculations to be made, especially before the July changes.
Some people will retain the $1. 6 million cap, some will increase to $1.7 million, and there are many variations in between.
Speak to our superannuation experts about the transfer balance cap
Whether you are about to approach retirement, want to calculate your transfer balance cap before end of financial year, or need guidance on the matter, our superannuation experts at LDB are ready to assist.
Simply give us a call on (03) 9875 2900 or send us a note via the contact form below.
