whohavemorethan$1.4millioninthepensionphase.
The$37billionfundisalsowritingtoallthesemembers
aswellassendingthema“significanteventnotice”.
Why $1.4 million when the limit is $1.6 million?
Mather says the fund doesn’t know how much other
super the member might have.
Ifaretireehasamixofpensiontypes–forexample,
anaccount-basedpensionandanannuity–theyhave
toadduptheamountsandmakesurethatthetotal
doesn’texceed$1.6million.
Mathersayspensionerswithmorethan$1.6million
in their account are usually aware of any changes.
Sam Prenesti, manager of external relations at
AustralianSuper, says Australia’s biggest super fund
will be revising the content on several pages of its
website, calling members, updating forms, posting
editorial in the blog and putting a Facebook post to
link to the fund blog.
Penalty for breaches
Iffundmembersdon’tswitchtheexcessacrosstoan
accumulation fund, all super funds have to disclose
pensionbalancesover$1.6milliontothetaxoffice.
Itwillimposea15%taxforanyexcessperiodsthat
start in the 2017-18 financial year. From July 1, 2018,
therateis15%forthefirst-yearbreachandthen30%
forsubsequentbreaches.
There is a grace period for excesses below $100,000.
The tax office says that if at July 1 the total value of
your retirement phase income streams is between
$1.6millionand$1.7millionandtheexcesscomes
from account-based income streams, then you have six
months to remove the excess capital without penalty.
A15%taxsoundslikethesameratepaidon
investment earnings but Hogan points out that it can
be higher than if a member moved to an accumulation
fund.Dependingontheinvestments,taxcanbe
substantially lower than 15% if the investments include
Australian shares that receive franking credits.
Thetransferbalancecapisinitially$1.6million
for the 2017-18 financial year but will be indexed in
$100,000 increments each year in line with CPI.
The transfer cap excludes subsequent investment
growth or losses. For example, if you start a pension
with$1.6millionanditsvaluegrowsto$1.7million,
this is not regarded as exceeding your cap. However,
if the value goes down over time as you use the funds
toliveonoryousufferlosses,youcan’ttopitup.
There has been some concern over what happens if
aretiree’sspousediesandtheyreceiveapensionfrom
their super, or if a former spouse has been ordered
to pay a portion of their pension income stream as
partofaFamilyCourtsettlement.Botharecounted
towards the $1.6 million cap.
Transition to retirement (TTR) income streams will
not count towards your cap from July 1.MDEFINED
BENEFITI
f you are a member
of a defined benefit
scheme with a consider-
ablepensionincomeitis
best to seek advice.
The rules state that
defined benefit pensions
willhaveavaluethat
counts towards the
$1.6 million cap by mul-
tiplyingthefullvalueof
thepensionsby16.
The amount used for
the calculation is the
gross pension including
all tax components –
tax free, taxable and
untaxed amounts.
What this means
is that anyone with a
defined benefit pension
of more than $100,000
will exceed the cap and
payments will be taxed
differently. See the
Australian Tax Office
website for examples.
(Currently the
unfunded components
of these pensions
are taxed at your full
marginal tax rate but
youreceivea10%
offset on this amount
once you reach 60.)
Forexample,Frances
is 62 and receives a
capped defined benefit
income of $160,000,
exceeding the cap by
$60,000. Under the
newrulesshewillneed
toincludehalfofthat,or
$30,000, in her assess-
able income.
Foranuntaxed-source
capped defined benefit
income stream, entitle-
ment to the tax offset
will be limited to the first
$100,000 of your total
capped defined benefit
income stream.