Previously we considered the new pension terminology. We will now consider the interaction between the terms. PLEASE NOTE THAT THE TABLES WILL NOT BE LEGIBLE ON A MOBILE DEVICE.
Bill is 65 and has an account based pension balance of $800,000 on 30/6/2017.
| Detail | PB | TBA | PTBC | GTBC |
|---|---|---|---|---|
| Pension Balance @ 1/7/2017 | P$800,000 | P$800,000 | P$1,600,000 | P$1,600,000 |
| PNet Increase after Pension @ 30/6/2020 | P$840,000 | P$800,000 | P$1,600,000 | P$1,600,000 |
| P$100,000 Cap Indexation 1/7/2020 | P$840,000 | P$800,000 | P$1,650,000 | P$1,700,000 |
PB = Pension balance TBA = Transfer balance account
PTBC = Personal transfer balance cap GTBC = General transfer balance cap
Bill’s retirement phase (pension) account was $800,000 at 1/7/2017. This established the opening balance of his transfer balance account. As he had no retirement phase record prior to 1/7/2017 his personal transfer balance cap was equal to the general transfer balance cap on that date. As he used half of the general transfer balance account his personal transfer balance cap only increased by half the cap indexation amount. On 1/7/ 2020 Bill could commence an additional pension with a starting balance of $850,000. The net increase in his pension balance is irrelevant.
Susan is 65 and has an account based pension balance that she has reduced, by way of commutation on 30/6/2017, to $1,600,000.
| Detail | PB | TBA | PTBC | GTBC |
|---|---|---|---|---|
| PPension Balance @ 1/7/2017 | P$1,600,000 | P$1,600,000 | P$1,600,000 | P$1,600,000 |
| PNet Increase after Pension @ 29/6/2020 | P$1,680,000 | P$1,600,000 | P$1,600,000 | P$1,600,000 |
| P$200,000 Lump Sum Drawdown @ 30/6/2020 | P$1,480,000 | P$1,400,000 | P$1,600,000 | P$1,600,000 |
| P$100,000 Cap Indexation 1/7/2020 | P$1,480,000 | P$1,400,000 | P$1,600,000 | P$1,700,000 |
| PFully Commute to Roll Over | P$0 | P-$80,000 | P$1,600,000 | P$1,700,000 |
| PCommence New Pension | P$1,480,000 | P$1,400,000 | P$1,600,000 | P$1,700,000 |
PB = Pension balance TBA = Transfer balance account
PTBC = Personal transfer balance cap GTBC = General transfer balance cap
Susan’s retirement phase (pension) account was $1,600,000 at 1/7/2017. This established the opening balance of her transfer balance account. As she had no retirement phase record prior to 1/7/2017 her personal transfer balance cap was equal to the general transfer balance cap on that date. As she used all of the general transfer balance account her personal transfer balance cap is not eligible for indexation. This is even though she reduced her transfer balance account by a $200,000 lump sum withdrawal prior to the indexation date. Clearly, a strategy to reduce the member’s transfer balance account prior to indexation to make the member eligible for cap indexation will be ineffective.
When she fully commuted her pension her transfer balance account became negative as it was reduced by the pension balance. The new pension restored her transfer balance account to $1,400,000. As this is $200,000 below Susan’s personal transfer balance cap she is eligible to move a further $200,000 into the retirement phase by starting an additional pension. Alternatively she may have added $200,000 to her commutation amount before starting the new pension to achieve the same result.
We will examine this further.
