Transfer balance cap
Value of retirement phase income streams
The value of a retirement phase income stream for the purposes of the transfer balance account depends on the type of income stream. The valuation of retirement phase income streams falls into one of four categories detailed below:
- Account based income streams
- Capped defined benefit income streams
- Deferred income streams
- Other retirement phase income streams (that are not any of the above)
Account based income streams - transfer balance account value
The value of an account based income stream for transfer balance account purposes is:
- for account based retirement phase income streams commenced prior to 1 July 2017 (excluding term allocated pensions): the account balance at 30 June 2017.
- for term allocated pensions commenced prior to 1 July 2017: the 'special value' at 30 June 2017 (see capped defined benefit income streams below)
- for account based retirement phase income streams commenced on or after 1 July 2017 (including TAPs): the purchase price.
- for account based income streams that are not in the retirement phase at commencement (e.g. transition to retirement income streams):
- if commenced prior to 1 July 2017, and in the retirement phase at 1 July 2017: the 30 June 2017 account balance
- if commenced prior to 1 July 2017, and the income stream enters the retirement phase on or after 1 July 2017: the account balance of the income stream on the day it enters the retirement phase for the first time
- if commenced on or after 1 July 2017: the account balance on the day the income stream first enters the retirement phase.
Capped defined benefit income streams - transfer balance cap value
Special valuation rules, for transfer balance account purposes, apply to certain non-commutable income streams known as capped defined benefit income streams. The special rules mean that capped defined benefit income streams do not have to be commuted and will not be subject to excess transfer balance tax.
Broadly, capped defined benefit income streams are income streams that meet specific product features set out in the SIS regulations, and must have commenced prior to 1 July 2017 (except for lifetime pensions).
Capped defined benefit income streams are summarised below, along with the special value calculations that are used for transfer balance cap purposes.
|Income stream||Must meet SIS regulation||Special value for transfer balance cap|
|Lifetime pensions commenced at any time||1.06(2)||Annual entitlement X 16|
|Lifetime pensions prescribed in tax reg 294-13.01(2) or (3), and in existence at 29 June 2007 (or such a pension paid from a successor fund at a later date)||1.06(2) excluding the rules concerning: commutations and the variation or cessation of pension payments to the child of a deceased or reversionary beneficiary|
|Lifetime pensions prescribed in tax reg 294-130.01(4) that are provided on the grounds of invalidity under a public sector superannuation scheme.||1.06(2) excluding certain rules concerning the variation, suspension or cessation of pension payments|
|Lifetime annuities commenced prior to 1 July2017||1.05(2)|
|Life expectancy pensions and annuities commenced prior to 1 July 2017||1.06(7)
|Annual entitlement x remaining term|
|Market-linked pensions and annuities commenced prior to 1 July 2017||1.06(8)
|Any income streams prescribed by the regulations to be capped defined benefit income streams||As set out in regulations|
Annual entitlement = first payment an individual is entitled to receive after the valuation is required ÷ number of days in period relating to payment x 365
Remaining term = number of years (rounded up to the nearest whole number) remaining on the term of the product.
Deferred superannuation income streams - transfer balance account value Deferred superannuation income streams were legislated as part of the innovative retirement income products super reform from 1 July 2017. An example of a deferred superannuation income stream is a deferred annuity, that may be purchased at age 60 but not commence paying an income stream until age 80.
The value of a deferred superannuation income stream will count as a credit for transfer balance account purposes when the deferred superannuation income stream becomes a 'retirement phase' income stream. This occurs when the client has met the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release. A deferred superannuation income stream is in the retirement phase if the recipient has met an eligible condition of release regardless of whether income stream payments are currently being paid.
The value at a particular time of an individual's superannuation interest that supports a deferred superannuation income stream is the greater of:
- the sum of each amount of consideration paid for the interest for the income stream, and that amount's associated notional earnings, as worked out under the income tax regulations; and
- the total amount of the superannuation benefits that would become payable if the individual voluntarily caused the interest to cease at that time.
Other retirement phase income streams - transfer balance cap value
The value of a retirement phase income stream that is not:
- account based; or
- a deferred superannuation income stream; or
- a capped defined benefit income stream depends on whether it is possible to identify a lump sum equivalent for the income stream at valuation. The following table sets out the value of these income streams for transfer balance cap purposes:
|Income streams commenced prior to 1 July 2017, examples||Value for transfer balance cap|
||Value determined by the regulations|
|All other income streams||Total amount of all the superannuation lump sums that could be payable from the interest at 30 June 2017.|
|Income streams commenced on or after 1 July, examples||Value for transfer balance cap|
|Purchased income streams (e.g. a commutable lifetime annuity, market linked income stream or term/life expectancy income stream)||Purchase price|
|Non-purchased income streams (e.g. a commutable defined benefit pension)||Value determined by the regulations|
Last modified: Wednesday, May 1, 2019