A new year, what happens with pension balances that have grown?

23 Jul 2018
Meg Heffron

Meg Heffron

Managing Director

A great many retired SMSF members with large superannuation balances adjusted their pension accounts back to $1.6 million on 30 June 2017. This was done to reflect new rules at the time that placed a limit, called the Transfer Balance Cap, on pension accounts.

Twelve months on, at least some of these pension accounts have grown above $1.6 million. It’s a natural consequence of taking as little as possible out of the pension account and investing in assets that produce a lot of income, growth or both. Particularly for younger retirees, it is entirely possible that the combination of income and growth can be enough to completely replace (and more) the amounts that have been drawn out as pension payments.

So what happens now? Does another adjustment need to be done to reduce the pension accounts back down to $1.6 million at 30 June 2018?

In short, no.

The Transfer Balance Cap is not a cap on the amount in superannuation or even the amount in a “retirement phase” pension (generally speaking, a pension being paid to someone who has retired).

It is a limit on the amount that can be used to start retirement phase pensions.

The reason it prompted a lot of people who already had pensions to take action at 30 June 2017 was that there was a special once-off check when the new rules came in. In future, retirement phase pensions will only be checked against the limit when they start. (There are also some special rules that also ensure the test is carried out when someone inherits a superannuation pension from a spouse.)

So in 2018/19 and onwards it will be entirely possible and in fact common to see pension accounts above $1.6 million.