Transferring money in and out of your account are debit and credit events. Tracking these events gives you a transfer balance account used to measure whether you exceed your personal transfer balance cap. The transfer balance cap limits how much of your super you can transfer into your retirement phase pension if the investment earnings are not subject to tax. The cap relates to the super balance of all money held in all super in all accounts in the retirement phase.
All your retirement streams of income are included which means so are your market linked pensions and capped defined benefit income streams. Your super fund calculates the value of all your super interest and reports the total to the Australian Taxation Office (ATO). Where you think the value reported is incorrect, contact either the ATO or your super fund.
Transfer Balance Cap Explained
The transfer balance cap is the total amount of super you can transfer into retirement phase income streams from your accumulated super account. The ATO tracks these amounts. Currently there is an index of $1.7 million as of July 1, 2021. However, your cap will be between $1.6 million and $1.7 million.
Exceeding your transfer balance cap can mean:
- Paying tax on any notional earnings that caused the excess amount.
- Converting part of your retirement phase income stream into a lump sum.
Keep in mind, that where your retirement account grows over its lifetime to exceed your personal transfer balance cap, you will not surpass your personal cap. But if the amount drops over time, you cannot top it up if you have already exceeded your personal cap.
Account Credits
Account credits refer to receiving a super income stream in your transfer balance account when in the retirement phase, for example:
- Income streams you had just prior to July 1, 2017, and continue to receive.
- New super income streams you receive after July 1, 2017.
- Any income streams that transition to the retirement phase.
- When you receive repayments from limited recourse borrowing arrangements.
- Any surplus transfer balance earnings.
Account credits reduce your available personal cap by increasing your transfer balance account.
What are Account-based Income Streams
A superannuation income stream are the payments you receive periodically in your super account. These include both reversionary and non-reversionary income from death benefits and can be:
- Account-based income streams that support the income allocated to your account, such as:
- Income streams you had just prior to July 1, 2017, and continue to receive.
- New super income streams you receive after July 1, 2017. These include death benefit income streams and pensions linked to the market.
- Income streams that transition to retirement and included in the retirement phase.
- Non-account based income streams such as defined capped income streams that do not have an identifiable account balance in your name but you receive regular payments.
What are Capped Defined Benefit Income Streams
Capped defined benefit income streams are different to account-based income streams as you can usually not take these as lump sum withdrawals. These have a modified value called a special value that your super fund calculates on your behalf. These income streams include:
- Pensions you receive for life no matter when they started.
- Annuities you receive for the rest of your life and began just before July 1, 2017.
- Life expectancy and market linked pensions and annuities that began just before July 1, 2017.
On their own, a capped defined benefit income stream will not cause your transfer balance account to exceed your cap. But when combined with an account-based income stream, you may exceed the cap. If this occurs, you will need to withdraw a lump sum from the account-based income stream.
For more information and insight into your super and how it works before you retire, talk to your account or super fund manager.
