Indexation of key superannuation threshold from 1 July 2021
As you are aware, the Government introduced sweeping changes to superannuation on 1 July 2017. Two significant changes were:
Limiting the starting capital of pensions to a maximum of $1.6m per person. The Government stated at the time that this pension cap would be subject to indexation when CPI lifts the cap by increments of $100,000.
Limiting non-concessional (also called ‘after tax’ or ‘un-deducted’) contributions to those individuals whose total superannuation balances are under $1.6m, measured from 1 July of the previous financial year. The Government stated at the time that this cap would be subject to indexation when CPI lifts the cap by increments of $100,000.
On the 27th January 2021 the ATO announced that, from 1 July 2021, these original caps of $1.6m will be increased to $1.7m.
There are some important points to note.
The new caps of $1.7m may allow those that previously could not make additional non-concessional contributions to top-up their super in the 2021/2022 year. This however will be based on the individuals superannuation balance (measured across all super funds where they have an interest) on 1 July 2021.
For those person/s that are already in pension phase and have already used their $1.6m cap, no indexation is available. Therefore the increase to $1.7m will not affect these individuals.
For those person/s that are in pension phase and have partly used some of their $1.6m cap, indexation will only apply on the component of the cap not used.
For those person/s that have not commenced any pensions, their new cap will be $1.7m
The above changes mean that every individual in pension phase on 1 July 2021 will have their own personal transfer balance cap of between $1.6 million and $1.7 million, depending on their circumstances. Those that have not commenced pensions on 1 July 2021 will have a personal transfer balance cap of $1.7m.
In keeping with the changes introduced on 1 July 2017, any growth in pension assets or earnings can increase an individual’s superannuation balance in excess of their individual cap. These earnings will continue to be exempt from tax.
Bush & Campbell keep track of our clients Transfer Balance Caps and will continue to work with SMSF members and trustees with regard to their retirement and pension plans.