By Meg Heffron

There has been plenty of doom and gloom about the increase in the transfer balance cap that will come into effect on July 1.

Remember, the transfer balance cap is the limit on the amount anyone can transfer into what is known as a “retirement phase” pension over their lifetime

Retirement phase pensions (so called because they are usually started by people who have retired) are the ones that give the best tax breaks – they allow self-managed super funds to stop paying income tax on some or all of their investment income.

Delaying the start of a retirement phase pension until the next financial year will mean the pension can start with $1.7 million.

The general limit is $1. 6 million and it is going up by $100,000 to $1.7 million from July 1, 2021.
The doom and gloom is not about the increase itself – that’s a good thing. Instead, it’s about the ridiculously complicated way the increase works.

In a nutshell, anyone who has already started one of these retirement phase pensions will only get some of the $100,000 increase in their limit (possibly $0). So there are actually 101 possible transfer balance cap amounts from July 1 – some people will stay at $1. 6 million, some will increase to $1.7 million and others will be any one of 99 options in between.

So that’s the bad news.

But as always, SMSF members still have some opportunities to make the best of the change and some careful thinking to do right now.

For a start, someone with a large super balance (let’s say well over the $1.6 million cap) who is thinking about starting a retirement phase pension right now might reconsider. Would it be better to wait until July 1? Starting with the maximum amount now ($1.6 million) will lock in that lower cap forever. Delaying the start until next financial year will mean the pension can start with $1.7 million. Of course this needs to be weighed up with the benefits of starting as soon as possible.

Read more @Financial Review