Transfer Balance Cap (TBC)
What is the Transfer Balance Cap?
The TBC is a new concept in superannuation. It is a limit applied to the total amount of superannuation that can be transferred into a superannuation income stream or pension product (a ‘retirement phase account’).
Who does it apply to?
The TBC will apply to all members who commence, or already have, a retirement phase account on or after 1 July 2017.
The DFRDB will calculate a value and report this against the members TBC. Ongoing management of the cap is a matter between the member and the Australian Taxation Office (ATO).
The workings of the TBC are complex and will be explained in more detail in a factsheet in the near future.
How is my pension valued?
The valuation differs depending on the type of pension you are receiving.
Your DFRDB pension will be valued by multiplying your annual gross pension by a factor of 16.
How does this apply to my reversionary or invalidity pension?
Reversionary and invalidity pensions will be subject to the TBC and the same methodology (i.e. using a factor of 16) will be applied when calculating the credit.
What if I have other pension products?
The TBC is a single lifetime cap applied to an individual, and applies collectively to all amounts in the retirement phase held by that individual. If you have more than one pension product, each product will be valued and reported by the respective provider to the ATO.
Does the TBC limit how much I can hold in my accumulation phase account?
No, the TBC only limits how much you can transfer into a retirement phase account.
An accumulation phase account is the amount you hold in super that you have not yet claimed.
Do Transition to Retirement pensions count towards the cap?
No, DFRDB does not participate in Transition to Retirement arrangements.
Will the TBC be indexed?
Yes, the TBC will be indexed periodically in $100,000 increments in line with CPI. However, once you have reached your cap, indexation will not apply.
What happens if I exceed the TBC?
Generally, members will be required to remove any amount in excess of the cap. However, this does not apply to members of defined benefit schemes. Where a defined benefit pension has a value that is higher than the TBC, they are not required to remove the excess amount, however tax concessions on pensions will be restricted to achieve commensurate treatment.
How will my pension be taxed?
DFRDB pensions over $100,000 per annum will be subject to additional tax. This is so commensurate treatment can be achieved in cases where a defined benefit pension recipient is unable to remove an excess amount. Our current understanding is that these changes will only affect members over 60 years old, or recipients of reversionary benefits who receive over 60 tax treatment.
50% of any amount of a taxed pension (your tax free and taxable taxed components) over $100,000 per annum will be included in the recipient’s assessable income. Any amount of an untaxed pension (your taxable untaxed component) over $100,000 per annum will be taxed at full marginal rates (with no 10% offset). For hybrid taxed/untaxed pensions over $100,000, the untaxed component will be stacked on top of the taxed component.
Is it one cap per pension, or per person?
The TBC is applied to an individual, and is applied collectively to all retirement phase accounts held by that individual.
Do lump sum payments count towards the cap?
No, benefits withdrawn as a superannuation lump sum do not count towards the TBC.
Is the gross or net pension valued?
The gross pension will be valued.
What tax components of the pension are valued?
The valuation is performed against the total gross pension, not individual components.
What happens when CPI is applied to my pension after it’s valued?
Your pension will not have a new value calculated each time your pension increases with CPI. Generally, only the commencing value (or the value at 30 June 2017 for existing pensioners) will be reported against your cap.
Is the non-indexed portion of my pension counted towards the cap?
Yes, the entire gross pension will be valued and reported against the cap.
Do I have to commute my pension if my pension is valued at more than $1.6m?
No, however you may choose to commute your pension if you wish. If you do not wish to commute a portion of your pension, and your pension is valued at more than $1.6m, any tax concessions applied to your pension will be restricted.
Where can I get more information?
Factsheets relating to the changes can be found on the Budget 2016–17 website fact sheet page.
Concessional Contributions Cap (CCC)
What contributions count towards the $25,000 cap?
- any salary sacrifice contributions
- any superannuation guarantee contributions
- notional employer contribution amounts (calculated)
How is the notional employer component calculated?
The notional employer contribution is calculated using an actuarial1 formula that represents the unfunded portion of your DFRDB benefit. To help you understand the impact of the notional contribution amount on your CCC, CSC have developed a concessional contribution estimator to help you manage your concessional contribution cap
1i.e. a formula designated by an independent Actuary.
How will I know if I am going to exceed my cap?
The DFRDB cannot tell you if you are going to exceed your cap as it is managed by the ATO. You should contact the ATO for this information.
What is the 5 year catch up provision?
One of the Federal Budget measures includes the introduction of a 5 year catch up provision. Members with total superannuation balance of less than $500,000 on 30 June who haven’t reached their CCC will be eligible to ‘roll forward’ their unused cap space for 5 years.
Non-Concessional Contributions Cap (NCC)
What contributions count towards the $100,000 cap?
Non-concessional contributions are personal post-tax contributions for which you do not claim a tax deduction i.e. your member contributions.
How will I know if I am going to exceed my cap?
The DFRDB cannot tell you if you are going to exceed your cap as the cap is managed by the ATO. You should contact the ATO for this information.
Does this change the current 3 year bring forward provision?
The 3 year bring forward provision still applies for members with a total superannuation balance of less than $1.4 million. Members who have a total superannuation balance over this threshold are subject to limited bring forward provisions. Please refer to the ATO’s website for more details of these changes.
What happens if my balance is more than $1.6m or I reach my cap?
Defined benefit members will not be required to cease making non-concessional contributions. However, any amount in excess of the cap, or contributions paid where a total superannuation balance exceeds $1.6m, will result in Excess Contributions Tax being applied by the ATO.
Total Superannuation Balance (TSB)
What is the Total Superannuation Balance?
The Total Superannuation Balance is the value of your super interests in both the retirement and accumulation phase, and may impact your ability to pay superannuation contributions. It is calculated by:
- adding together:
- the accumulation phase value of any superannuation interests that are not in the retirement phase
- the value of any superannuation income streams in the retirement phase
- any transferred amounts that have not been credited to an account on 30 June
- subtracting any personal injury or structured settlement contributions that have been paid into a superannuation fund
What will DFRDB report against the Total Superannuation Balance?
DFRDB will report an amount in respect of your Accumulation Phase Value effective 30 June each year, commencing from 30 June 2017. If you are in receipt of a DFRDB pension, the value reported against your Transfer Balance Account (The Transfer Balance Cap [PDF 388 KB]) will count towards your Total Superannuation Balance.
What is the Accumulation Phase Value (APV)?
APV is defined as the total amount that would become payable if an individual voluntarily caused their superannuation interest to cease. CSC will report the APV for your DFRDB interests as the total of the following:
- maximum commutation amount; and
- accumulated productivity contributions; and
- the total of your MilitarySuper ancillary account, if applicable.
What is the Retirement Phase Value?
The Retirement Phase Value is the total of all products you hold in the retirement phase (i.e. superannuation income streams). Generally, this will be the value of your Transfer Balance Account (The Transfer Balance Cap [PDF 388 KB]).
Where can I find the value of my Total Superannuation Balance?
Your Total Superannuation Balance can be obtained by contacting the ATO or can be viewed on myGov. However, the ATO have indicated they will not be in a position to accept values reported by funds until late 2017. It is unlikely you will be able to obtain your Total Superannuation Balance by contacting the ATO or using myGov before this time. CSC appreciates the expected reporting delays may impact your superannuation plans for the 2017-18 financial year, and will advise you of the values calculated on your behalf after 30 June 2017. If you believe you are at risk of exceeding the cap, you may need to monitor the balances of all your superannuation interests or seek financial advice to avoid any unintended consequences.
Can I reduce my Total Superannuation Balance?
You may be able to reduce your Total Superannuation Balance by removing funds from the accumulation and/or retirement phase, however this will be subject to the rules of the relevant provider. As the Total Superannuation Balance will be captured as at 30 June, any withdrawals or commutations that occur after your Total Superannuation Balance is captured will not be reflected until the following year.
Can I stop making non-concessional contributions to DFRDB?
No, as a contributing member you are required to pay non-concessional (member) contributions, unless you have accrued 40 years’ service.