$1.6 Million Superannuation Transfer Balance Cap and Estate Planning

Posted 05-02-2017
Written by admin 101

Most of us have heard about the changes to superannuation. However there is a great amount of uncertainty regarding those changes and the impact they will have on individuals.

If you are in the position where you have pension entitlements in excess of $1.6 million then it is crucial that you seek urgent financial advice.  If your partner dies and you receive their superannuation entitlements will the addition of those funds take you over the $1.6 million cap?

Example 3.10 of the explanatory memorandum to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 (Cth) sets out an example of some options available.

"Kurt and his wife Katherine are retired. In July 2017, Katherine commences a superannuation income stream with $1 million and Kurt commences a superannuation income stream with $1.6 million.  Kurt has exhausted his transfer balance cap.

On 31 October 2018, Katherine passes away, leaving Kurt as the sole beneficiary of her remaining superannuation interests, now worth $800,000.

At this time, the superannuation interest that supports Kurt’s superannuation income stream has a value of $1.4 million (the value of both individual’s superannuation interests have been reduced over time by the drawdown of superannuation income stream benefits).  However, as Kurt started the superannuation income stream with the full value of his transfer balance cap he cannot transfer further amount into the retirement phase without reducing his transfer balance first.

Kurt may take Katherine’s superannuation interest of $800,000 as a death benefit lump sum, which would have to be cashed out of the superannuation system.

Alternatively, he could partially commute $800,000 of his superannuation income stream, retaining it in the accumulation phase, and take a death benefit income stream of $800,000.  Kurt would still have his original superannuation income stream in the retirement phase (now supported by a superannuation interest of $600,000) and would also have $800,000 in accumulation. If Kurt chose this option, he would not need to cash any of Katherine’s superannuation interest out of the superannuation system as a death benefit lump sum."

This is all pretty complicated and the penalties where a person exceeds their personal transfer balance cap are significant.

However many of the problems that can arise as a result of these significant changes to superannuation can be overcome if you take the time to obtain expert financial advice.  Following that advice you should also consider the estate planning issues that arise and review your will and other estate planning documents.

Do you need some advice about Superannuation or have a question about Estate Planning? You can contact us. We'll be able to help you via a quick phone call, ask us a question via email or even chatting with you online.