The amount of super savings that can be transferred into a retirement pension (whether you have one or more than one) will increase from $1.6 million to $1.7 million on 1 July this year, but not for everyone.
Currently, you can transfer a maximum of $1.6 million from your super savings into a retirement pension (or pensions) to generate an income after you’ve finished working.
However, from 1 July 2021, this limit (known as the transfer balance cap) will increase to $1.7 million. While this is good news for some, the higher cap won’t apply to everyone, and other caps and limits will also be affected.
What is the transfer balance cap?
One of the main benefits of transferring super savings into a retirement pension is that the investment earnings within your retirement pension account are tax-free, and from age 60 onwards, so are any pension payments you receive.
The transfer balance cap is a limit on how much can be transferred from your super savings into a retirement pension, regardless of how many retirement pensions you hold. Note, these are not to be confused with the government’s Age Pension, or a transition to retirement pension.
Also, once you’ve transferred the maximum amount into a retirement pension (according to your personal transfer balance cap), you typically won’t be able to top up your retirement pension a second time, even if your balance reduces over time. If you transfer more than your relevant transfer balance cap into a retirement pension, tax penalties may apply.
Why is the transfer balance cap changing?
The reason the transfer balance cap is increasing by $100,000 to $1.7 million in the 2021-22 financial year is because changes to the cap are dependent on the cost of living, as measured by the Consumer Price Index, which recently went up.
Who does the new $1.7 million transfer balance cap apply to?
While the general transfer balance cap is changing, your personal transfer balance cap could remain at $1.6 million, could increase to $1.7 million, or it could be somewhere in between.
What that will come down to is whether you move, or have already moved, money from your super account into a retirement pension before 1 July 2021. How much you’ve moved will also have an impact.
What this means is, if you’ve never moved money from super into a retirement pension, and do this for the first time after 1 July 2021, the new transfer balance cap of $1.7 million will apply to you.
However, if you move, or have already moved, money from super into a retirement pension before 1 July 2021, this will not be the case. Instead, your personal transfer balance cap will be determined by how much you’ve already transferred into retirement pensions.
If you transfer (or have transferred) less than $1.6 million, your personal transfer balance cap will be anywhere between $1.6 million and $1.7 million.
If, by 1 July 2021 you fully use, or exceed, the transfer balance cap of $1.6 million, your personal cap will remain at $1.6 million.
These changes could affect what you do before and after 1 July 2021, so please contact us to discuss whether you may be affected.