12 Responses to Managing the pension Transfer Balance Cap

  1. Graham Horrocks July 27, 2018 at 12:18 PM #

    Yes, for calculating tax a SMSF (or a small APRA fund) must now use the proportional method for unsegregated assets (rather than use the method for segregated assets) if any member is receiving a pension and has total superannuation benefits in all funds exceeding $1.6 million. Splitting some of the superannuation benefit into another, perhaps non-SMSF superannuation fund, should allow different asset allocations to be used.

  2. Peter H Hughes July 24, 2018 at 12:11 PM #

    I was under the impression that if the $1.6m was exceeded in a SMSF -say $2M, the total income of the pooled investment would be treated proportionately ie assume total income of $120,000 – 80% would be tax free = $96,000 and the remaining 20% in ‘Accumulation ‘ phase would $24,000 taxed at 15% = $3,600 I could live with that!

  3. Vicki C July 23, 2018 at 11:06 PM #

    My understanding is that you can segregate for asset allocation purposes, but not for tax. So a member with over $1.6m of superannuation balance could have mainly growth assets in pension phase, and some other type of asset in accumulation phase. Only the ECPI calculation will treat them as not segregated.

    • Liam July 24, 2018 at 7:12 AM #

      Just repeating my above comment for John. To help clarify the strategy of segregating your investments I would mention that more defensive assets such as cash and fixed interest could only be segregated in a SMSF if both members are under the TSB limit of $1.6m. If one/both of the members is above the $1.6m TSB (across all Superannuation accounts inside and outside of the SMSF) then the option would be to to have a separate accumulation account within a retail / industry superannuation fund or keep those investments outside superannuation in personal names or a family trust.

      The other option is a second SMSF but the ATO is frowning on that idea and you would need a good argument to sustain the 2 SMSF strategy like other younger members in accumulation so wanting to keep all accumulation funds invested in a similar investment strategy.

  4. John De Ravin July 19, 2018 at 9:52 PM #

    I have the same query as Gavin Roberts. Graham can you please clarify your comment about asset allocation as between the pension account and the accumulation account where the total exceeds the TBC? At least in an SMSF I don’t believe segregation is permissible.

  5. James N July 19, 2018 at 1:22 PM #

    Great article, Graham!

    I am surprised how little consideration is given by most to matching asset return profiles to ownership structures.

    As a further example, holding low-income/high-growth assets like a US share ETF outside of Super, with the high-income/moderate-growth assets like an AUS share ETF inside of Super.

    This type of approach allows you to control the timing of most of the taxable element of returns from the US ETF by choosing when to realise gains, and make use of the refund of excess franking credits available to the AUS ETF inside of super. Similar in concept to what you’re describing.

    Thanks for putting your thoughts out to the Cuffelinks readership!

    • Geoff F July 20, 2018 at 12:01 AM #

      Hi James N,

      Re your comment “and make use of the refund of excess franking credits available to the AUS ETF inside of super” …

      It may be appropriate/necessary to factor in Labor’s policy of not refunding “excess franking credits”, as it would impact your suggested approach.

      • James N July 23, 2018 at 8:47 AM #

        Hi Geoff F,

        Yes, it certainly could. It would diminish the value of the strategy, but it would still be beneficial holding those assets within super environment compared to personally/via family trust.

        Good discussion, as always.

  6. Dean July 19, 2018 at 10:59 AM #

    One item that was not covered is the effective use of the provisions to increase the $1.6M TBC by government under the current regulations. It makes sense, where possible, to defer some decisons to after the first increase which is several years away. The increase will be based on CPI and be in increments of $100,000.

    Has anyone calculated the effective date of the increase to $1.7M?

    • peter July 19, 2018 at 5:32 PM #

      Dean, that very much depends on the CPI, which can go up and down year on year. The Reserve Bank is targeting CPI of about 2.5% per year. If we get this inflation rate consistently it should reach $1.7 million in 2020. A consistent rate of inflation 2.0% will mean 2021. Of course we all know inflation is not consistent year on year.

  7. Gavin Roberts July 19, 2018 at 10:28 AM #

    I thought you are unable to segregate assets (and therefore their earnings) when the $1.6m TBC applied, ie. you needed to use the proportionate approach for the allocation of income across pension and accumulation balances.

    • Liam July 24, 2018 at 7:11 AM #

      To help clarify the strategy of segregating your investments I would mention that more defensive assets such as cash and fixed interest could only be segregated in a SMSF if both members are under the TSB limit of $1.6m. If one/both of the members is above the $1.6m TSB (across all Superannuation accounts inside and outside of the SMSF) then the option would be to to have a separate accumulation account within a retail / industry superannuation fund or keep those investments outside superannuation in personal names or a family trust.

      The other option is a second SMSF but the ATO is frowning on that idea and you would need a good argument to sustain the 2 SMSF strategy like other younger members in accumulation so wanting to keep all accumulation funds invested in a similar investment strategy.

      Important to understand it is the $1.6m TSB that causes the restriction, not the TBC

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