Recent Changes Affecting Superannuation Pensions

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The Government has recently introduced significant changes affecting superannuation contributions and pension, most of which apply from 1 July 2017.

From 1 July 2017, the key changes affecting superannuation pensions include the following:

  • (a)   New $1.6 million ‘transfer balance cap’ (‘TBC’) – The total amount an individual can transfer into a tax-free pension phase including, for example, as an ABP, in one or multiple funds, will be capped at $1.6 million from 1 July 2017.  However, subsequent earnings on the assets supporting a pension will not be restricted. By way of comparison, prior to 1 July 2017, there is no limit on the amount that may be held as a tax-free pension interest.
    • ·       Roll-back of excess amounts – An individual who breaches their TBC will be required to transfer the excess amount (plus notional earnings thereon) into an accumulation account (or withdraw the excess amount from superannuation, if applicable) to avoid losing the pension exemption on the pension.  Special rules apply for defined benefit pensions.
    • ·       Penalties – A 15% tax will apply to notional earnings on the excess amount.  Second and subsequent breaches will be taxed at 30%.  However, as a transitional measure, if, on 1 July 2017, an individual exceeds the cap by less than $100,000, penalty tax (and notional earnings) will not be imposed, provided the breach is rectified by 31 December 2017.
    • ·       Transitional CGT relief for pension assets – Funds may elect to reset the cost base of certain assets to their market value where a fund member rolls-back their pension to accumulation phase before 1 July 2017 to comply with the TBC.  This is important relief as it can help minimise any potential future CGT exposure with respect to these assets.
  • (b)  Removal of the tax exemption for Transition to Retirement Income Streams (‘TRIS’) – From 1 July 2017, the pension earnings exemption will be removed for assets supporting a TRIS, regardless of the date it commenced.  As a result, earnings on these assets will generally be taxed at 15% (and the TRIS will not ‘count’ for the purposes of the TBC).  CGT relief is available in respect of a TRIS asset (although no commutation is generally required).  
  • (c)   Lump sum election – From 1 July 2017, individuals will no longer be able to elect to treat regular superannuation pension (e.g., TRIS) payments as a lump sum for tax purposes (which are tax-free up to the ‘low rate cap amount’ of $195,000 for the 2017 income year).