Australian Financial Review
24 October 2016
So you thought that a $1.6 million superannuation pension limit would be
It sounds so straightforward, if not every Coalition MP’s cup of Earl Grey tea
with a slice of lemon. Under the proposed rules, superannuants can put a
maximum of $1.6 million into a tax-free pension. Any excess must be left in an
accumulation account, where it attracts a 15 per cent earnings tax.
Sadly, nothing is elementary when it comes to retirement savings. Still, even by the super system’s
complex standards, the way in which the balance transfer cap is to be calculated looks particularly
nasty – and potentially expensive to implement.
The limit is to be indexed to inflation in increments of $100,000. So far so good, although hopefully
industry executives will be able to convince the government to base the cap on wages, given that every
other super threshold is linked to wages rather than the consumer price index. The earnings generated
by a pension, after all, are a substitute for the superannuant’s wage or salary. That is the whole point.
But back to the calculations. In order to avoid a drain on the public purse, the $1.6 million limit is to be
indexed proportionately. This means that for people who do not transfer the full $1.6 million into a
super pension in the first instance, the percentage of the limit that they have not used will be indexed.
Bear with me.
If a retiree transfers $800,000 into a pension account in July next year, when the rules are due to be
enforced, they will retain the right to contribute another 50 per cent of the $1.6 million limit at a future
date. If by the time they contribute a second tranche the limit has risen to $1.7 million, they will be able
to contribute $800,000, plus 50 per cent of the $100,000 incremental rise – or $850,000 in total. Geddit?
This effectively means that over time we will all have individual pension transfer limits, depending on
how much we put into a super pension and when.
This is not to say that the overall thrust of limiting the amount of money that can be transferred into a
tax-free pension is a poor idea. But when rules are changed there are invariably trade-offs to be made
between simplicity and revenue gains. The government has clearly gone for the cash. Let’s hope the
complexity can be managed and the rules understood.
ATO may not cope
The Australian Taxation Office has been charged with calculating all the sums, but some industry
executives have expressed concerns that the ATO may not be able to cope. It will be relying
on “SuperStream”, the electronic linking of data and payments, to get access to the necessary data, but
SuperStream is still a work-in-progress.
“SuperStream is only being implemented,” says one industry executive.
Then there is the expense.
The Australian Institute of Superannuation Trustees estimates that it will cost super funds – excluding
self-managed schemes – about $90 million to implement proportionately indexed transfer
balances. The ATO is likely to incur a greater cost to implement the necessary systems, argues the
An alternative would be to give all superannuants access to the same incremental increases.
“The revenue at risk is small relative to the cost of tracking individual balances,” says David Haynes,
executive manager of policy and research at the AIST.
The SMSF Association also has its doubts.
“We believe that the rules in relation to indexation of any unused transfer balance cap are complex and
require individual tracking of personal transfer balance caps, in order to avoid access to small
increments in the cap. It is our view that this rule adds a level of complexity that is unnecessary for the
potential revenue risk it is seeking to avoid,” says the AIST in its October submission to Treasury.
“It creates significant cost and administration inefficiencies with little benefit to government revenue, ”
the SMSF Association adds.
So much for consumer-friendliness.