Like many old fogies, I didn’t take much notice of the superannuation changes in last year’s Budget because I didn’t see that it affected me. Then a mate called to say I had better check out the transfer balance cap in my super arrangements because I could cop a penalty. Well, did I get a shock!
He was talking a language I was foreign to and I couldn’t see how it applied to me. But since I could run foul of the ATO, I decided to check it out.
Off we go to the ATO’s advice on the cap. I needed a translator. The Tax Office issued what they affectionately called the Law Companion Guidelines, running to over 100 pages. Piece of cake says young John.
All I wanted to know was how to calculate this cap on super balances so that if I was under $1.6 million, I could rest easy and if I was over $1.6 million, I had a problem.
So what makes up this cap? The on-line gobbledegook the ATO offered made me no more the wiser and when I phoned them to speak to a human being, he gave me a bum steer.
So, I’ve got some dough in the old CSS scheme and it pays me a pension fortnightly. It turns out that it is a defined superannuation scheme. So what is a defined scheme. Try to find this one out if you dare!
It turns out to be a scheme where a person doesn’t have any control on the movement of the pension (CSSW depends on CPI rises) and there is no cash hanging around. If the size of the pension is not dependent on say, the stock market, it is a defined scheme. The thing is that the notional amount of transfer balance (whatever that is) is counted towards the cap of $1.6 million even though the pensioner has no control over it.
So if a person has a CSS pension and has taken the lump sum and put it into a private super fund because it can get more interest (9% against the CSS 1%) the two figures are added together to see where you stand against the cap. So you have the notional CSS figure and the actual cash figure in the private fund which has grown over time.
Still with me? Didn’t think so. Stay with me and see if it starts to make sense.
The notional CSS figure is calculated by multiplying the annual gross amount of one’s pension by 16 (a magical figure developed by actuaries – mystifying!) So for example, if one gets a gross pension of say $45,000 (on which you pay a small tax anyway), the amount you have to put towards your cap is $720,000. If you get a gross pension of $60,000 the figure for cap purposes is $960,000.
So let’s say a person puts $300,000 from their CSS lump sum (which is earned over 30 years in the public service) and it grows by 9% a year over a 10 year period and you take 4% out per year, you end up with $488,700 in the fund.
So you add the notional $960,000 to the $488,700 to get $1,448,700 and since it is under $1,600,00 you are fine.
But if you have been prudent and provided for your retirement with a CSS pension of $60,000 and have put money into the private fund over the years to the extent that you have over $640,000, you have to shift any money over that amount out of your pension fund into somewhere else like an accumulation fund (which is taxed but your pension fund is not if you’re over 60), cash it in and spend it or invest it somewhere else that the ATO can tax you on.
In other words it is shrinking the amount that people can get tax free in their pensions after they get to 60. Nice one ScoMo! Not!
Still with me? Didn’t think so. So how did I find all this out? Got no help from the ATO, none at all from my CSS people, who wouldn’t even answer the phone after keeping me hanging on for over an hour.
I had to wade through a stack of stuff until I spoke in frustration to a guy in my private super fund who told me how to get the info.
But the garbage that I was fed in seeking answers is just too good to be true. Talk about bureaucratese, talk about public sector cr@p, talk about banking jargon and insurance sales fine print! An example from the ATO’s Guidelines to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016
Transfer balance account
- You commence to have a transfer balance account on the later of 1 July 2017 and the day you first start to be a retirement phase recipient of a superannuation income stream. If you are a retirement phase recipient of a superannuation income stream just before 1 July 2017 (at the end of 30 June 2017), your transfer balance account commences on 1 July 2017.
- You are a retirement phase recipient of a superannuation income stream at a time if:
(a) the superannuation income stream is in the retirement phase at that time, and
(b) a superannuation income stream benefit from the superannuation income stream is payable (that is, an entitlement to be paid commences) to you at that time or, if the income stream is a deferred superannuation income stream, the benefit will become payable to you after that time.
- You continue to have a transfer balance account even if you subsequently cease to be a retirement phase recipient of a superannuation income stream. You only cease to have a transfer balance account when you die.
- Subject to paragraph 15 of this Guideline, a superannuation income stream is in the retirement phase when a superannuation income stream is currently payable. If it is a deferred superannuation income stream, that income stream is in the retirement phase when a person has met a relevant condition of release (retirement, terminal medical condition, permanent incapacity or attaining age 65).
I have deliberately given you an example of something which makes some sense. The vast majority of stuff is incomprehensible. Good luck with your tax this year!