The new legislation increases the number of new definitions to super. As the interplay can be confusing I have bolded some terms.
Retirement Phase
A member is in the retirement phase when they start a pension which entitles the pension account to exempt current pension income. Essentially this will include any pension except a transition to retirement pension.
Account Based Pension Account Balance
This is the physical balance of all the member’s account based pension accounts. It may differ from the member’s transfer balance account.
Transfer Balance Account
This record is maintained by the ATO. The opening balance is the amount that a member commences a retirement phase pension with. As at 1 July 2017 it will be their pension balance at that date. It is increased by any new pensions and notional earnings levied by the ATO following a personal transfer cap breach. It is not increased by favourable investment returns. It is decreased by lump sum withdrawals, the value of structured settlements, divorce payments or losses due to fraud. It is not decreased due to unfavourable investment returns. It is possible for the account to be negative.
General Transfer Balance Cap
This will be $1.6m as at 1 July 2017 for all members (a breach of up to $100,000 will be excused provided it is rectified within 6 months). Any member with more than this amount in the retirement phase must commute up to 100% of their existing account based pensions before that date. (This might occur where they are also in receipt of a lifetime complying pension paying $100,000 or more per annum as these cannot be commuted but are valued at 16 times the pension amount.) The general transfer balance cap will be indexed in $100,000 increments for all members who have not commenced a retirement phase pension. Those who have will receive a prorated cap increase.
Personal Transfer Balance Cap
As at 1 July 17 each member’s personal transfer balance cap will equal the general transfer balance cap. As indexation (in $100,000 increments) will apply prorata to each member based on their unused cap, each members personal transfer balance cap may vary from other members over time. Once a member’s transfer balance account has reached their personal transfer balance cap no further indexation of the personal transfer balance cap will apply. This is even if their transfer balance account subsequently falls below their personal transfer balance cap due to lump sum drawdowns, for example. A member’s personal transfer balance account is continually tested against their personal transfer balance cap. If the transfer balance cap is breached, a notional return is calculated for the period of the breach and tax is levied. The amount of the breach plus a net notional return must be removed from the retirement phase. The member may rectify the breach immediately it becomes apparent. It is not necessary to await an assessment from the ATO as it is for contribution cap breaches.
These terms will be considered by way of examples in the next article.
