Transfer balance cap
Transfer balance account credits
Generally, a credit arises in a client's transfer balance account when the client commences a retirement phase income stream.
The following amounts are credited to a client's transfer balance account:
|Type of income stream||Examples of income streams||Amount of credit||Date of credit|
|Retirement phase income streams commenced before 1 July 2017|
|Account based income streams (other than market linked/term allocated income streams)||
||Account balance at 30 June 2017||1 July 2017|
|Capped defined benefit income streams||
||Special value4 at 30 June 2017||1 July 2017|
|Non account-based, non-capped defined benefit income streams||
||Value at 30 June 2017||1 July 2017|
|Reversionary death benefit income streams||
||Reversionary pensions that reverted prior to 1 July 2017 are valued at 30 June 2017.
The value will be:
|Retirement phase income streams commenced on or after 1 July 2017|
|Account based income streams||
||Purchase price||Date of commencement|
|Transition to retirement income streams entering the retirement phase6||
||Account balance on starting day (starting day is the day the income stream is first in the retirement phase7)||Date the income stream is first in the retirement phase7|
|Capped defined benefit income streams||
||Special value4 at starting day||Date of commencement|
|Deferred superannuation income streams entering the retirement phase||Deferred annuities||The value is the greater of:
||Date becomes a retirement phase income stream i.e. client has met a condition of release8|
|Non-account based, non-capped defined benefit income streams||
||Value5 at starting day||Date of commencement|
|Reversionary death benefit income streams that reverted on or after 1 July 2017||
||Reversionary pensions where the deceased died on or after 1 July 2017are valued at date of death.
The value will be:
|12 months after date of death|
|Other transfer balance credits|
|Notional earnings||Applies when the client's transfer balance account exceeds their personal cap. (not calculated if client has only capped defined benefit income streams)||Excess balance x GIC rate9 number of days in breach up to date of determination||Daily|
|Repayments of LRBAs from accumulation phase assets10||Using money from a segregated accumulation phase bank account to pay down a loan secured against a property that is in the segregated pension asset pool (applies to LRBA entered into on after 1 July 2017)||Amount by which a member's retirement phase interest is increased||Date of repayment|
|1 Purchased complying lifetime, life expectancy and market linked income streams are income streams that commenced prior to 20 September 2007 that may continue to receive either 50% or 100% asset test exemption for social security purposes (depending on the start date). By definition complying pensions had to meet the same SIS pension and annuity standards that are required for capped defined benefit income streams. There may be some purchased lifetime, life expectancy and market linked income streams that are not complying for social security purposes, but still meet the SIS pension and annuity standards required for capped defined benefit income streams. Among other requirements, capped defined benefit income streams have lifetime terms, no commutation rights (except in limited circumstances) and no residual capital value (RCV).
2 Capped defined benefit income streams generally have no commutation rights at commencement of the policy, and no RCV. Lifetime annuities that are not complying for social security purposes, but meet all the requirements of SIS reg 1.05(2) will be capped defined benefit income streams.
3 At the time of writing there are two categories of lifetime pension that have been prescribed to be capped defined benefit income streams. These are:
4 The special value of a capped defined benefit income streams is: Complying lifetime income streams (annual entitlement x 16). Complying life expectancy or term allocated pensions (annual entitlement x remaining term).
5 The value of a superannuation interest, for transfer balance account credit purposes, which is not a capped defined benefit income stream or account-based income stream, is determined by the regulations.
6 For TTRs to be in the retirement phase, the trustee must be notified if the client has met any of the three following conditions of release: retirement, permanent incapacity and terminal medical condition. If the fund is not notified of the condition of release the TTR is not in the retirement phase. A TTR is automatically in the retirement phase from the client's 65th birthday.
7 Includes transition to retirement income streams, where the original income stream may have commenced prior to 1 July 2017, but is becoming a retirement phase income stream of the current recipient for the first time on or after 1 July 2017.
8 Relevant conditions of release for deferred superannuation income streams to be in the retirement phase are: retirement, permanent incapacity and terminal medical condition and attaining age 65.
9 General Interest Charge rate.
10 A transfer balance credit will also arise where repayments are made to a limited recourse borrowing arrangement, arising under contracts entered into on or after 1 July 2017, and where the asset and loan involved in the LRBA arrangement are supporting (including partially) a client's retirement phase income stream interest but the repayments are sourced from assets that do not support the same income stream. These credits to a client's transfer balance account capture the value that is shifted from the accumulation phase to the assets supporting a retirement phase income stream. For example, if a client in a segregated fund is using SG contributions to their accumulation account to fund the LRBA repayments in their pension account, these repayments will trigger transfer balance credits in the client's transfer balance account.
Last modified: Wednesday, May 1, 2019