Summary of the $1.6m measure?
- From 1 July 2017, there will be a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax‑free retirement phase. Subsequent earnings on balances in the retirement phase will not be capped or restricted.
- Savings beyond this can remain in an accumulation account (where earnings are taxed at 15 per cent) or outside the superannuation system.
- People already retired will have to bring their retirement phase balances under $1.6 million before 1 July 2017.
- The transfer balance cap will be indexed and will grow in line with CPI, meaning the cap will be around $1.7 million in 2020‑21.
[Treasury website – super reforms]
Treasury Factsheet summary
- From 1 July 2017, the Government will introduce a $1.6 million cap on the total amount of superannuation that can be transferred into a tax-free retirement account.
- The cap will index in $100,000 increments in line with the consumer price index, just as the Age Pension assets threshold does.
- Superannuation savings accumulated in excess
of the cap can remain in an accumulation superannuation account, where the earnings will be taxed at 15 per cent. - A proportionate method which measures the percentage of the cap previously utilised will determine how much cap space an individual has available at any single point in time.
- For example, if an individual has previously used up 75 per cent of their cap they will have access to 25 per cent of the current (indexed) cap.
- Subsequent fluctuations in retirement accounts due to earnings growth or pension payments are not considered when calculating cap space.
Those individuals already in retirement as at 1 July 2017 with balances in excess of $1.6 million will need to either:
- transfer the excess back into an accumulation superannuation account; or
- withdraw the excess amount from their superannuation.
Individuals who breach the cap will be subject to penalty arrangements.
Very few people will be affected by this proposal. The average superannuation balance for a 60-year old Australian nearing retirement is $240,000 and less than one per cent of fund members will be affected by the balance cap.
[Treasury Factsheet on $1.6m measure]
[LTN 173, 7/9/16]
A factsheet is available on this topic.