Super reform myths – part 2
As we draw inexorably closer to 1 July, d-day for a raft of super reforms, several myths have taken grip.
I took the scalpel to five of these myths in April
– and now place a further few under the microscope.
Urban myth no. 6
'The amount a person is permitted to have in superannuation is limited to $1.6 million.'
There is no limit to the amount a person is permitted to accumulate in superannuation. However, there is a limit to the amount that can be held in pension phase, governed by the transfer balance cap which set at $1.6 million on 1 July and subject to indexation.
Also, if a person’s total super holdings exceed $1.6 million, they are not permitted to make non-concessional contributions.
The new super rules will impact on the amount of fund tax for members with a pension value of more than $1.6 million or receiving a transition to retirement income stream (TRIS). Any excess over $1.6 million will be required to be transferred to a taxed environment in accumulation phase or, if possible, taken from the fund as a lump sum. Investments supporting a TRIS will be transferred from a tax-exempt to taxed environment within the fund.
Urban myth no. 7
'I can even out the $1.6 million between me and my spouse without the money leaving the fund.'
In situations where either a fund member or their spouse have more than $1.6 million in super, it is not possible to transfer any excess from their account to their spouse’s account.
It may be possible to help build up the spouse’s account by withdrawing an amount from their account and gifting it to their spouse. The spouse would build up their super balance by making a concessional or non-concessional contribution to the fund, if they meet the rules for making contributions.
Urban myth no. 8
'I can’t make concessional contributions to super once I have more than $1.6 million.'
A person can make concessional contributions to super irrespective of their total super holdings.
However, there is a limit on ‘non-concessional contributions’, which aren’t permitted where a person’s total super holdings as at 30 June prior exceed $1.6 million.
Urban myth no. 9
'To transfer from retirement to accumulation phase I need to take money out of the fund.'
The transfer of amounts from retirement phase to accumulation phase is really an accounting entry. The member’s pension account balance will be reduced and the accumulation balance will increase by a corresponding amount. This requires the pension to be commuted (converted) in full or in part for the transfer to take place.
Urban myth no. 10
'On the death of my partner I can transfer their super to my accumulation account.'
From 1 July 2017 it is only possible to have a reversionary pension or death benefit pension maintained in superannuation. The legislation does not allow a beneficiary to credit a death benefit to his or her accumulation account in the fund. Any death benefit pensions that create an excess over and above a member’s transfer balance cap are required to be paid from the fund as lump sums.
Urban myth no. 11
'Everyone is entitled to the benefit of the indexed transfer balance cap.'
Once a person has used up 100% of their transfer balance cap, which is $1.6 million on 1 July 2017, they are unable to access any increase in the cap due to indexation. The transfer balance cap is indexed to CPI in increments of $100,000.