Q. I read that a couple can have a combined Superannuation balance of up to $3.2 million after 1 July 2017. If one member of a couple has a pension account of say, $1 million and the other has a pension account of $2.2 million, does it therefore follow that the member with the larger balance in this example is not required to reduce that balance to $1.6 million with effect from 1 July 2017 because their total DIY balance does not exceed $3.2 million?
A: There is considerable confusion as to how the caps will work from 1 July 2017. If you have an Account Based Pension (ABP), the limit at 1 July 2017 will be $1.6 million. This is referred to as the transfer balance pension (TBP) cap. If an individual currently has more than $1.6 million in an ABP, they must reduce their balance in the pension to less than this amount to avoid tax penalties. As a couple, this equates to $3.2 million in total but it is only a reflection of the individual limit being $1.6 million each. So using your example, if one member of the couple has a balance of $1 million, the other spouse would be limited to $1.6 million.
From 1 July 2017, if you are establishing an ABP, you will be limited to transferring $1.6 million into the Pension. Please note you are not obliged to keep the ABP below the $1.6 million limit on an ongoing basis. Once commenced, the value of the ABP may rise and fall depending on prevailing market conditions. If your ABP falls below $1.6 million through regular income withdrawals or market movements, you will be unable to top up to the $1.6 million Cap. Correspondingly, if your ABP grows above the cap you will not be obliged to reduce the balance below the limit.
The Australian Taxation Office (ATO) will monitor how much a person has transferred into and out of (e.g. by way of Lump Sum withdrawals) the ABP. This will be referred to as a Balance Transfer Account. The account is created when a person starts receiving an income stream in retirement. The account will broadly operate on a system of credits and debits. Transfers to an ABP will count as a Credit against the $1.6 million cap and Lump Sum (Commutations) withdrawals from the ABP will count as a debit. Each individual’s transfer balance account will be maintained by the ATO and must also be monitored by the individual.
The other cap that causes confusion is the $1.6 million Superannuation Balance Cap. If from 1 July, your total Superannuation balance is over $1.6 million, you will be unable to make personal after-tax (Non-Concessional) contributions to Superannuation. If you exceed the cap, the only contributions that you will be able to receive will be Concessional contributions. Concessional contributions include Superannuation Guarantee, Salary Sacrifice and Personal Tax Deductible contributions to Superannuation. These contributions are capped at $25,000 effective 1 July 2017.