By Monica Rule

It is so easy to forget things when you haven’t used them for a while. 

I recently returned from a five-week holiday in America.  It was the first holiday I have had in six years where I did not take my laptop to do any superannuation work.  I wanted to make sure I took a good break from work and only focus on my trip.

When I got back though, I could not even remember how to turn on my computer, let alone where all my superannuation documents were stored!  It took me a few days to get back into swing of things and catch up with all the latest superannuation news.

I was only away from my business for five weeks, so imagine how difficult it is for someone who rarely if ever refers to the superannuation law. My return coincided with a lot of panicked phone calls and emails from self managed superannuation fund (SMSF) members who had forgotten how the transfer balance cap operates.  My clients were worried about having exceeded their retirement pension account balance of $1.6 million.  

These clients had done very well with their superannuation investments.  Their investments have performed very well and the balance in their superannuation retirement pension account had grown in excess of $1.6 million.  All of them thought they needed to make sure their pension account balance did not exceed the $1.6 million transfer balance cap at the end of each financial year. They were happy to hear that they had nothing to worry about.

I explained to them that as they had ensured they did not have more than $1.6 million in their retirement pension account on 1 July 2017, they did not need to worry about anything.  They could forget about their pension account balance.  It does not matter if it grew in excess of $1.6 million. The crucial date for them was 30 June 2017. This is where the new superannuation law changes forced members with amounts in excess of $1.6 million in their retirement pension account, to either move the excess amount to their accumulation account or pay it out as a lump sum superannuation benefit.  As they had already done this, they no longer needed to keep an eye on their pension account balance each year.

Once their retirement pension account balance as at 30 June 2017 had been reported to the Tax Office using the “Super transfer balance account report” (NAT 74923), they did not need to do anything else.  If the investments in their pension account performed well and the balance grew in excess of what was reported, it does not matter.  At the same time, if the investment performs poorly and their pension account balance is reduced from what was reported, they cannot top it up.

The only time they need to report to the Tax Office again is if they decide to either fully or partially commute their retirement pension.

For example, if a member is aged 76 then they would be required to take a minimum pension percentage of 6% of their pension account balance as at 1 July.  Let’s assume an SMSF member has $1.6 million in their pension account at 1 July 2017.  This member is required to withdraw $96,000 ($1,600,000 x 6%) from their SMSF by 30 June 2018.  If this member’s pension account balance grows to $1.7 million on 1 July 2018, then the following year the minimum pension required to be withdrawn from their SMSF will be $102,000 ($1,700,000 x 6%).

Say in December, the member decides he needs $200,000 to purchase a new boat.  The member could either withdraw a larger pension of $200,000 or withdraw a minimum pension of $102,000 and partially commute his pension and take a lump sum of $98,000 as well.

If a retirement pension account is either fully or partially commuted, it is a transfer balance account event and needs to be reported to the Tax Office.  By reporting it, the ATO will reduce the member’s personal transfer balance account by the commuted amount.  This allows the member to commence another pension with the commuted amount at a later time if he wishes to.

If you cannot remember the superannuation law changes that took effect on 1 July 2017 – don’t panic. There are specialists out there who can help you. It’s better to have peace of mind and enjoy your retirement than to go worrying over your super.

For Gold and Platinum members, Monica has provided complete details of what transfer balance account events must be reported as well as when it must be reported.

Monica Rule is an SMSF Specialist and author of The Self Managed Super Handbook – Superannuation Law for SMSFs in plain English – www.monicarule.com.au

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. The statements and opinions are the expression of the author, not Law Central, and have not been checked for their accuracy, completeness or changes in the law. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin.

Related documents:

• Self Managed Superannuation Fund Deed
• SMSF - Update Rules
• Pension Pack for Self Managed Super

Related webinars:

• Webinar Recording - SMSF End of Year Essentials
• Webinar Recording - Understanding the 2017 Superannuation Changes