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Retirement
www.fssuper.com.au Volume 13 Issue 03 | 2021
CPD Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD. Worth a read because: The onset of the 2021/22 financial year brings with it, for the first time, indexation of the transfer balance cap (TBC). Unlike indexation of the general contribution caps, indexation of the TBC will result in different outcomes among individuals and, as this paper explores, may well lead to unintentional breaches of the TBC rules. Visit www.financialstandard.com.au and click ‘FS Aspire CPD’ in the menu or call 1300 884 434 to gain access to the platform.
Indexation of transfer balance cap and contribution caps Added complexity may lead to unintentional breaches of TBC rules
T
Garvin Jones, Neil Irving
he All groups CPI figure for the December 2020 quarter has triggered upward indexation of the general transfer balance cap (TBC) and any unused part of an individual’s TBC from 1 July 2021. This sounds like good news, but the bad news is that the indexation system to be used for any individual’s cap space is quite complex potentially leading to errors and unintentional breaches of the TBC rules. Also, the movement in average weekly ordinary time earnings (AWOTE) has triggered an upward indexation of the general concessional contributions cap from 1 July 2021. This means the general non-concessional contributions cap, which is set at four times the contributions cap, will also increase.
Transfer balance cap When the concept of the transfer balance cap (TBC) was introduced in July 2017 as the upper limit for pension balances in the retirement phase, the general transfer cap was set at $1.6 million. In the year a person commences a retirement phase pension for the first time, their individual TBC is set as equal to the general
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TBC for that financial year. Until now, everyone has started with a TBC of $1.6 million. The general TBC and any unused part of an individual’s TBC, also termed cap space, are potentially subject to indexation for movements in the CPI, but until now the movement in the CPI has not been enough to trigger any increase. It has therefore been easy to calculate the amount of any cap space by subtracting the balance of an individual’s transfer balance account (TBA) from the general TBC of $1.6 million. However, for the first time since July 2017, the general TBC [was slated to] rise by $100,000 to $1.7 million on 1 July 2021 due to increases in the CPI. For an individual commencing a retirement phase pension for the first time in the 2021/22 financial year, $1.7 million will become their individual TBC. This may be good news if the individual can delay starting their first retirement phase pension until after 30 June 2021. Indexation also potentially applies to the cap space of an individual who already has a retirement phase pension in place on 1 July 2021, but has not fully used their individual TBC, but the details of how it is applied can lead to confusion. When a person has not fully used their individual TBC, their TBC will be increased by a dollar amount calculated as:
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