I have an account-based pension (like a Flexi Pension)
What is your total balance for all your retirement pensions (including those you may have outside of UniSuper)?
Over the transfer balance cap
When you start a pension, your balance(s) is reported to the ATO and registered as a ‘credit’ to your transfer balance account. Any amount over the general transfer balance cap (currently $1.6 million) means you’ve breached the cap, and needs to be withdrawn or transferred from your pension account (including any ‘associated earnings’). If you breach the cap, you’ll incur tax penalties from the ATO until the amount is transferred or withdrawn from your account.
Transfer or withdraw from your Flexi Pension.
Under the transfer balance cap
If you’re under the general transfer balance cap (currently $1.6 million), you can transfer additional money from your accumulation account into a retirement pension up to the transfer balance cap at any time.
WHAT HAPPENS IF MY ACCOUNT BALANCE GROWS ABOVE THE CAP AGAIN?
If your pension balance is within the cap (at the time it is credited to your transfer balance account) and it subsequently grows above the cap (currently $1.6 million) through investments earnings, you won’t have breached the cap.
How will I know I’ve breached the cap?
If you breach the cap, the ATO will write to you requesting you transfer or withdraw (commute) the ‘excess transfer balance amount’. This amount includes ‘excess transfer balance earnings’ and ‘notional earnings’. You’ll generally need to act on this ATO notice within 60 days.
If you don’t act on the ATO’s initial notice within 60 days, the ATO will write to us (or another super fund if you have more than one fund), instructing the fund to withdraw or transfer (commute) an amount from your pension account(s). We’ll call you, and send you a letter outlining your options. If we don’t hear from you, we’re required to automatically transfer your pension account to a super account, or process a payment to your nominated financial institution account.
We're here to help
As a UniSuper member you have exclusive access to a team of advisers from UniSuper Advice. We can help you understand these changes and explain how they may impact your own financial situation. Contact UniSuper Advice.
I have an indexed pension
As indexed pensions provide a fixed annual income and generally can’t be converted into a lump-sum, the transfer balance cap rules apply differently.
For indexed pensioners, your transfer balance cap is calculated using a formula to work out the value of your super interest supporting an income stream. This value is called the ‘special value’.
To calculate the ‘special value’ of your indexed pension, which is assessed against the current $1.6 million general transfer balance cap, a multiple of 16 is applied to your annual pension income.
For example, an annual indexed pension income of $100,000 would have a ‘special value’ of $1,600,000 (16 x $100,000).
What does that mean for my Indexed Pension?
If you’re over 60 and the special value exceeds your transfer balance cap, 50% of any pension income you receive over $100,000 per year will be included in your assessable income and may be subject to income tax.
We’re generally required to withhold some tax from your indexed pension payments.
I have an indexed pension and a Flexi Pension
If you have both an indexed pension and a Flexi Pension, you’ll have to ensure that your combined pension balances are under the cap, and withdraw any excess amount from your Flexi Pension, if required.
If you have an indexed pension and an account-based pension (like our Flexi Pension), your indexed pension will be given a ‘special value’ based on rules outlined in the legislation, as it generally can’t be converted into a lump-sum.
For most indexed pensions, this is the annual payment multiplied by a factor of 16. This special value is then added to the value of your Flexi Pension to assess the total value against the $1.6 million cap.
Consider this example
Angela
Angela, 61, is a UniSuper member receiving a Defined Benefit Indexed Pension (DBIP) of $120,000 per year. If she then started a Flexi Pension account with $400,000, Angela’s combined pension value would be calculated as follows under the transfer balance cap rules:
- Angela's annual DBIP income of $120,000 would be multiplied by 16 to determine its ‘special value’, which is equal to $1,920,000 (i.e. $1.92 million). Angela can’t convert her DBIP income into a lump sum, so 50% of the amount above the current $100,000 annual pension income ($10,000) will be taxed.
- Angela also has $400,000 in her Flexi Pension account which will need to be transferred back to an accumulation account or outside of super as she has already reached through her DBIP income.
This cap applies to the total of your combined super retirement accounts, meaning you can't start a new pension against a new cap.
We're here to help
As a UniSuper member you have exclusive access to a team of advisers from UniSuper Advice. They can help you understand these changes and explain how they may impact your own financial situation. Contact UniSuper Advice.