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New transfer balance cap from 1 July 2017

From 1 July 2017, there is a $1.6 million limit on the amount of benefits you can maintain in ‘retirement’ phase. This is called the ‘transfer balance cap’.

 

This cap applies to the total amount you hold in existing retirement phase pension accounts at 30 June 2017, as well as the starting value of any new retirement phase income stream accounts commenced on or after 1 July 2017.

 

It’s important to remember that this transfer balance cap applies to the combined value of all your retirement phase income stream accounts, so if you have more than one account, you’ll need to ensure you keep track of your total retirement phase income stream balances. You can visit the Australian Taxation Office’s (ATO) myGov website to view your total pension balance. The ATO data is based on information as at the prior financial year end, so may not be timely and accurate. You can also check your current account balance with your pension fund(s).

 

What happens if you exceed the cap?


If you hold more than $1.6m in a retirement phase income stream account after 1 July 2017, you may receive notice from the ATO that you must remove the excess component above $1.6m, plus a notional earnings amount by:

  • Transferring it to an accumulation account, or
  • Withdrawing it from the superannuation environment.

You must do this within 60 days of the date of issue of the notice you receive. You may also be subject to tax on the notional earnings amount.

 

If you do not act on a notice you receive, we may then receive a Commissioner’s Commutation Authority requiring us to transfer the excess component above $1.6m, plus notional earnings out of your retirement phase income stream within 60 days of the date of issue of the notice that we receive.

 

How will we respond if we receive a Commissioner’s Commutation Authority for your account?


If we receive a Commissioner’s Commutation Authority, we will make all reasonable efforts to contact you for instructions on where to transfer the excess component plus notional earnings.

  • If we are unable to make contact with you, we will deduct the amount from the most conservative investment option you hold and either:
    transfer the amount to the most conservative investment option in any existing FirstChoice accumulation account you hold, or
  • open a new FirstChoice Wholesale Personal Super account on your behalf, transfer the amount to the FirstRate Saver investment option and formally notify you.

We will not transfer any monies for the purposes of reducing your transfer balance below $1.6m unless instructed through a Commissioner’s Commutation Authority.

 

How do these changes impact Term Allocated Pensions?


If you hold a FirstChoice Term Allocated Pension and the annual income paid to you is greater than $100,000, from 1 July 2017, 50% of the income in which exceeds $100,000 will be subject to your marginal tax rate and we are required to apply and deduct PAYG tax from your pension payments. This may reduce the regular pension paid to you.
 

From July 2018, we will be required to issue PAYG statements to all Term Allocated Pension investors regardless of your annual pension payment amount.

 

What should you do?


If you think you may be getting close to or are already exceeding this cap you should talk to your financial adviser about managing your retirement phase income stream accounts.

Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.