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Transfer balance cap

Value of retirement phase income streams

Section: 19.7

What is a retirement phase income stream?

From 1 July 2017, retirement phase income streams include all superannuation income streams, except those listed below:

  • Transition to retirement income streams (and older non-commutable allocated income streams) where the recipient has not satisfied the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release. If the recipient is under age 65 and has satisfied the retirement, terminal medical condition or permanent incapacity condition of release, the income stream will only be in the retirement phase if the recipient has notified the trustee of the income stream provider that they have satisfied a condition of release. However, where a transition to retirement income stream has reverted to a reversionary beneficiary, it will always be a retirement phase income stream.
  • Deferred superannuation income streams where the recipient has not satisfied 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.
  • Income streams where a commutation authority has been issued in relation to an excess transfer balance that a trustee has failed to comply with within the required 60 day period.

If an income stream is in the list of exclusions above, it is considered to be in the accumulation phase of superannuation for the purposes of the earnings tax exemption and does not count against the transfer balance cap. However, it is still considered an income stream for other purposes, including the proportioning of tax components and the taxation of payments from the income stream.

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 (eg 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 account value

Special valuation rules, for transfer balance account purposes, apply to certain non-commutable income streams known as 'capped defined benefit income streams'.

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, which 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 member 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.

Income streams commenced prior to 1 July 2017
Examples Value for transfer balance cap
  • Defined benefit income streams that do not comply with SIS Regulations reg 1.06(2)
  • Non-complying annuities (lifetime and fixed term)
  • Flexi-pensions
  • Annuities where the purchase price is not wholly converted into annuity income
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 2017
Examples Value for transfer balance cap
Purchased income streams (eg a commutable lifetime annuity or term/life expectancy income stream) Purchase price
Non-purchased income streams (eg a commutable defined benefit pension) Value determined by the Regulations

Last modified: Wednesday, July 24, 2019