Facing the $1.6m pension cap

May 2017

ANZ's Rahul Singh explains the impact of the $1.6 million transfer balance cap on retirement planning.

The $1.6 million transfer balance cap, to take effect from July 1, 2017, will have a wide range of implications, and advisers must carefully consider how best to give clients tax-effective retirement income advice, says Rahul Singh, ANZ Wealth technical services manager.

The intent of the new cap is to effectively restrict how much can go into a tax-free retirement income stream. Those who already have income streams above $1.6 million will also be affected, Singh adds.

“Clients who have got more than $1.6 million in tax-free retirement income streams on June 30, 2017, will be effectively forced to take some remedial action,” he says.

This could involve commuting the excess back into the accumulation phase or cashing it outside of superannuation.

“That requires some careful consideration and analysis, perhaps around tax-free thresholds, or looking at whether we can use a younger spouse’s account to our benefit in some cases,” Singh says.

The new cap will have implications for a range of clients, including those with large-value insurance plans or a grandfathered account-based pension.

For those with defined benefit income streams or term-allocated pensions, there will be a unique formula to convert these pension payments into an amount for the purpose of the transfer balance cap.

It will also impact how advisers utilise reversionary nominations or binding nominations as part of estate planning.

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