Retirees and those Transitioning to Retirement

The reforms likely to impact on you are:

Tax concessions limited to pension balances up to $1.6 million

The reforms introduce a $1.6m ‘transfer cap’ on the amount you can hold in a superannuation pension. This means that if you are in pension phase, the balance of your pension needs to be no more than $1.6m.  If not, from 1 July 2017 the Tax Commissioner will direct your fund to reduce your retirement phase interests back to $1.6m and you will be subject to an excess transfer balance tax.  Your overall super balance can be more than $1.6m but only $1.6m can be transferred into a tax-free pension.  Keeping the excess balance in super may still be worthwhile because of the low 15% tax rate.

If your spouse has a low superannuation balance, it might be worth thinking about how you can maximise your returns as a couple.

Earnings on fund income no longer tax-free

From 1 July 2017, the income from assets supporting transition to retirement income streams will no longer be exempt from tax but included in the fund’s assessable income. For example, if your super fund earns interest from a term deposit, that interest is currently tax-free in a transition to retirement pension.  From 1 July, that interest will be included in the fund’s assessable income.

Lump sum withdrawals no longer meet minimum pension requirements

The Government has closed a quirk in the superannuation system that allowed people under 60 to withdraw from their pension and in certain circumstances have that withdrawal treated as a tax-free lump sum. From 1 July 2017, the ability to take a lump sum from an account based pension will be removed.  Generally, from age 60 these pension payments become tax-free.