Budget 2016: Retirement
Wednesday 4 May 2016
Transfers to pension accounts capped at $1.6 million
From 1 July 2017, a $1.6 million cap on the total amount of superannuation that can be used to commence a pension will be introduced. New rules will limit the amount that individuals can transfer into a tax-free retirement account.
For those entering retirement after 1 July 2017, any superannuation in excess of the cap can remain in accumulation, where earnings are taxed at 15%. Subsequent earnings on these balances will not be restricted. A proportionate method which crystallises a percentage of the cap each time a pension is commenced will be used to keep track of unutilised caps.
For those with existing pensions on 1 July 2017, amounts in excess of the cap on this date will need to be rolled back into an accumulation account or withdrawn. Punitive taxes will be applied to pension commencements in excess of the cap including the earnings on the excess.
The $1.6 million cap will increase in $100,000 increments in line with the Consumer Price Index (CPI). Similar measures will be applied to defined pension schemes by changing the tax treatment of pension amounts over $100,000. The Government will undertake a consultation on the implementation of these changes for both accumulation and defined benefit funds.
Transition to retirement income streams
From 1 July 2017, the tax exempt status of income from assets supporting transition to retirement (TTR) pensions will be removed. Transition to retirement pensions allow individuals to access their superannuation whilst still working between preservation age (currently 56) and age 65.
Under the new rules, people can continue existing TTR pensions and start new ones; however, the earnings on these assets will be taxed at 15% in line with accumulation assets. The ATO has recently clarified that a member can elect to make a lump sum payment from a TTR pension and it will be treated as such for tax purposes allowing tax-free withdrawals for the under 60s up to the low rate cap (currently $195,000).
The Government will also move to close this loophole.