Australia’s $1.6m Total Superannuation Balance and Transfer Balance Cap are expected to increase to $1.7m on 1 July 2021, which could result in additional opportunities to make additional contributions or reduce the tax on earnings within your superannuation fund.
The Total Superannuation Balance and the Transfer Balance Cap were introduced as part of the Super Reforms on 1 July 2017.
Total Superannuation Balance
The Total Superannuation Balance (TSB) was introduced as a means of valuing an individual’s total superannuation interests at a point in time. The TSB had the effect on individuals with more than $1.6m superannuation at 30 June of the previous year of no longer permitting non-concessional (post-tax) contributions, although an individual could continue to make concessional (pre-tax) contributions assuming the normal age and work test requirements were satisfied.
Increasing the TSB to $1.7m would allow individuals to make further non-concessional contributions that they would not ordinarily have been permitted.
Transfer Balance Cap
The Transfer Balance Cap (TBC) was introduced to limit the amount an individual can transfer in their superannuation to a tax-free Account Based Pension in retirement. This means that if someone is aged 65 (or 60+ and has a change of employment), the first $1.6m of their superannuation can be used to draw a pension and be invested tax free.
When the TBC was introduced it was to be indexed periodically in $100,000 increments in line with inflation. It was thought that the first indexation could occur as soon as 1 July 2020, however, due to lower inflation numbers, it will now almost certainly be on or after 1 July 2021. While indexation is $100,000, the amount of additional TBC an individual could access will be calculated proportionately based on the amount of that individual’s available TBC space, meaning the amount of remaining unused TBC will be indexed.
For example, if an existing Account Based Pension was commenced using 90% of an individual’s TBC, there is 10% available. This means indexation will apply to the available $100,000 TBC at 10%, being $10,000. So that individual’s TBC will increase to $1.61m after indexation.
Extending the cap to $1.7m will mean that those who have not commenced their $1.6m Account Based Pension could have a higher pension balance if they wait until 1 July 2021. Given this is still a long way off, if an individual is eligible a year earlier, a careful calculation would be required to uncover whether it would be suitable to commence a pension on eligibility to lock in the tax-free benefits for a value today, or at a later time on a greater value.
If you are close to these limits, it would be worth seeking advice as to the best strategy for you to take advantage of the anticipated increase to the TSB and TBC.
If you have any questions about your superannuation strategy, please contact a member of the William Buck Wealth Advisory team in your area. You can find their details here.