Transfer Balance Cap

Budget measure

  • Introducing a $1.6 million superannuation Transfer Balance Cap to restrict the total amount of superannuation an individual can transfer into retirement phase accounts. See Introducing a $1.6 million transfer balance cap on the Budget 2016–17 website fact sheet page.
  • A number of similar changes will apply to defined benefit superannuation arrangements. See Changes to defined benefit schemes on the Budget 2016–17 website fact sheet page.

The Transfer Balance Cap (TBC) is a new concept in superannuation. It is a limit that will apply to the total amount of superannuation that can be transferred into a superannuation income stream or pension product (a ‘retirement phase account’). The cap will apply to all members with a retirement phase account on or after 1 July 2017. These changes will apply to all pensions, although some modifications may be applied for reversionary and invalidity pensions. These will be discussed in a future update once the specifics of these modifications are known.

The effect of the TBC is to restrict the amount of superannuation that can be transferred into the retirement phase. It will not restrict how much money can be held in superannuation in general. This measure will have no impact on the payment of superannuation lump sum benefits, or balances in the accumulation phase.

The TBC applies collectively to all retirement phase accounts a member holds. For account based pensions, the equity used to purchase the pension (or the value of the retirement phase account on 1 July 2017 for existing pensioners) will be reported against the cap. As defined benefit pensions do not have an accumulation value, a valuation needs to be performed. Our current understanding is that the valuation will be determined as;

  • the first full fortnightly payment (less any backdated arrears) annualised and multiplied by a factor of 16

Where a member exceeds the TBC, they will be required to move the excess amount back into the accumulation phase, or withdraw the amount as a lump sum.

As defined benefit pensions generally have commutation limitations, restrictions will instead be placed on their tax offsets to replicate the effect of the $1.6 million cap.

From 1 July 2017, defined benefit pensions over $100,000 per annum will be subject to additional tax. Our current understanding is that these changes will only affect recipients who are over age 60, or recipients of reversionary pensions that have over-60 tax treatment applied.

For more information on the treatment of defined benefit schemes, please refer to your DB scheme website or the ATO factsheets.