Targeting of superannuation concessions

The transfer of funds in excess of 1.6 million from pension to accumulation phase is okay for those few fortunate to have these large balances.
Have not found the rulings regarding withdrawal of monies from the accumulation phase and the tax payable.

Hi Mary, Cuffelinks is not licenced to give advice so this is general info, but if a person has reached preservation age and retire, they can withdraw money without paying tax. If they don't intend to retire, they need another another condition of release. Details of definitions on the ATO website.

Hi Graham, I am pleased the budget left ''imputation credits'' alone. Now my main worry is an ALP Royal Commission into banking if they were to be elected. It would cause the entire financial system, heavily reliant on the "Big Four'', disruption and uncertainty for the duration of the Royal Commission and beyond. Jo Bjelke once said you should never have an enquiry unless you know the outcome beforehand. In this, he was right.

Sadly, this reinforces the fact that you cannot make long term plans any more. People, like Bruce, who did their sums a couple of years ago and worked out that retirement was a viable option only to now find that their assumptions have been blown out of the water, can no longer trust our government to let things be. Everyone will have to build into their estimates an additional 'regulatory risk premium' that assumes that an existing benefit will be taken away.

A part of me acknowledges that the system Peter Costello introduced was "too generous", and that in the long run it has turned out to be too expensive for the nation to afford (not as bad as, but not unlike those generous Greek pension schemes that have had to be canned). And lower income people have had to deal with this uncertainty for years as government payments have chopped and changed from Budget to Budget. So those who have more than $1.6 million in pension phase should not complain too loudly lest they sound like they're simply being greedy.

But it is nonetheless an indictment on our political process that uncertainty is continually being heightened, rather than governments helping to create an environment in which sound plans can be made and rewarded.

This could be quite simple.

On 30 June 17 your fund is valued in the usual way and reported to the ATO when the tax return is done for the fund. Say the value at this point is $2m in pension phase and $100k in accummulation phase.

From 1 July 17, $1.6m of the pension phase remains in pension phase, while the remaining $400k returns to accumulation phase, giving a start of year total of $500k in accumulation and $1.6m in pension mode.

At this point you do not have to do anything. The bookkeeping for this will be done when you do the administration for the 2017-2018 financial year.

There will be some minor complications for those whose pension has segregated assets, and those whose super is all in pension mode. This group will need an actuarial certificate for the following year, and may want to withdraw the accumulation mode super.

Bruce, there is no maximum withdrawal rate for pension mode super unless you are on transition to retirement, where the max is 10% of your income. 4% is the minimum withdrawal, not the maximum.

I do agree with you that $1.6m may not be sufficient for some families to live on, but unless you have your super in a term deposit you should be earning around $100k within your fund and the tax saving on this is about $26k compared to having this outside of super. This tax concession is more than you would get if you had no super or savings and qualified for a single age pension.

The restriction is not how much you can have in super in total, it is only on the amount that is in pension mode with the earnings tax free.

Hi Laine. I think the 1 July 2017 balance is trickier than that. Retirees will need to estimate how much money they need to take out of the pension account a few days before 30 June (to allow for settlement or processing of transfers on share transactions). Also, many assets are not traded daily, such as real estate, and unlisted bonds have wide valuation spreads. Then the retiree may be hit with a penalty if the market rallies on say 29 and 30 June 2017 and the balance goes over the $1.6 million cap. I imagine a last minute scramble in late June to work out values and balances.

I have serious concerns with the decision by a Government, who promised no changes to superannuation, to retrospectively introduce a superannuation transfer balance cap and reduce the amount of non-concessional contributions taxpayers can contribute.

As pointed out by Graham Hand, unless your funds are invested in a fixed interest account, it will be impossible to ensure that the cap is not breached. And if there is a major downturn in your investments there is no possibility of transferring more assets into the fund to bring it up to the cap. This change will discourage SMSFs from investing in venture capital type projects, start up companies or infrastructure type funds that may take several years to pay a dividend. There could also be an affect on the market for collectables and works of art.

Assuming the Liberal Government is returned, I expect that many people with balances over $1.6million will withdraw their excess funds and use them to negatively gear property.

The statement by the Treasurer makes no mention of the current concession that allows Small Business Owners to transfer $1 million into their super fund on the sale of their business, provided they have owned and operated it for 15 years.

Unlike Labor's proposal that offered a tax free pension of $75,000 and 15% tax on the rest, this plan provides a maximum income of $64,000 (@4% withdrawal rate) and does not permit members to benefit from balances accumulated under previous taxation regimes. Labor's proposal also permits members to retain excess funds in superannuation accounts, thereby allowing super funds to invest for the long term.

The changes announced do not take into account the personal circumstances of Self Funded Retirees. In my case, I am responsible for the care for my 90 year old mother, my 50yr old spouse works part-time, and my eldest child is in Year 7. A reduction in my income to $64,000 will have a significant impact on my family and make it difficult for me to adequately provide for my family.