Since 1 July 2017, a new transfer balance cap of $1.6 million applies. This means a member can transfer up to $1.6 million from the accumulation phase of superannuation to support their retirement income streams.
This reform is designed to limit the amount of benefits a member can transfer to the tax-free retirement phase.
Broadly, the balance of existing retirement phase account-based income streams at 30 June 2017 as well as the initial value of new account based income streams commenced after 1 July 2017, will be measured against an individual’s personal transfer balance cap. Any amounts over the cap will need to be rolled back to accumulation phase or withdrawn from the superannuation system. For defined benefit pensions the rules are different again, with a cap determined by a multiple of 16 of the annual income received. Read more about the changes to defined benefit pensions.
The tricky aspect of this decision is that once you withdraw the money from super there may be very limited capacity, if any at all, to get the money back into super (depending on your age, this could be an irreversible decision). If you do withdraw it, you then need to consider how best to invest or use the money outside of super.
To assess whether you will be better off having these excess assets in super or outside super one aspect you would consider is tax. Within super, earnings will be concessionally taxed at up to 15% whereas outside of super, earnings will be taxed at your marginal tax rate (inclusive of the tax-free threshold).
If you are affected by this reform, consider your own individual circumstances to determine the best course of action. If in doubt, seek financial advice.
Read more about the general transfer balance cap.