14 June 18

Warning for SMSF trustees: New superannuation pension cap of $1.6m now in place.

The maximum amount of superannuation that can be used to fund a tax-free pension in retirement is now restricted to a cap of $1.6 million per member.

For example, say you are over age 60 and have met a condition of release (such as retiring from the workforce), or are over 65, and wish to start a pension. Prior to 1 July 2017, there was no limit on how much with which you could start a pension.

This had two positive effects. Firstly, all of the pension income was tax-free to you as a member, and secondly, all earnings on the assets used to fund your pension were also tax-free.

The Transfer Balance Cap rules came into effect from 1 July 2017, meaning that when transferring a member’s superannuation accumulation balance to pension phase to start what is now called a ‘retirement phase pension’, you are restricted to a maximum of $1.6 million per member and any balance above that will need to remain in accumulation phase.

If you are above age 60 and have met a condition of release, you can still cash out lump sums from your accumulation balance tax-free, but the earnings on those assets within the fund will be taxable at the (albeit concessional) rates applicable to superannuation, rather than being tax free.

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