Beware of the $1,600,000 pension cap

Beware of the $1,600,000 pension cap. If you thought it was straight forward, then think again. 

It’s complex and the costs of getting it wrong are high as evidenced by:-

  • You have to monitor your position. You have to know the balance of your transfer balance cap (your amount in pension mode) against the general transfer balance limit (the allowable limit).
  • If you exceed your transfer balance cap at 30th June 2017, you will receive an excess notice which will require you to pay tax and withdraw sufficient monies to get beneath the general transfer balance limit. Doing nothing is not an option if you currently exceed or may exceed your transfer balance cap. Thankfully our SMSF clients will know where they are at with our real time SMSF reporting system and will be able to take prompt action. Those with public funds may know their balance as of the day before but will find it, to say the least, difficult to bring themselves sufficiently under their cap as redemptions can take weeks to process.
  • Many with their own super fund may well know the value of their super interests.  But what if the fund’s assets include  assets that aren’t valued daily such as properties?  One needs to have a very good understanding of the value of all fund assets.  And keep in mind that Melbourne property prices posted double digit growth for 2016.
  • You need to be aware that the very useful estate planning tool of reversionary pensions may no longer be such a wonderful solution. The reversionary pension will count against your transfer balance cap – although one has 12 months grace in pulling money out as a lump sum.
  • The growth in your pension assets doesn’t count against your transfer balance cap. Think carefully about what assets you keep / put into pension mode.
  • And here is a real nasty one. If you exceed your transfer balance cap, then you will be denied taking advantage of any further increases in the cap. So when it increases from $1,600,000 to $1,700,000,  to $1,800,000 and so on, you will be denied these increases if you have ever exceeded your transfer balance cap.

These are just some of the issues to be addressed well before July 2017.

Inaction can be the worst action.

With the removal of the accountant’s exemption as from June 2016, accountants can no longer provide any form of financial planning advice.  The only way for you to properly address your situation is to obtain financial planning advice and do so from a financial planner who understands these complex tax rules.

At MRS, we will spend today planning for your success.