With all of the talk around the $1.6m superannuation transfer balance cap, something that hasn’t been discussed a great deal in the media is around the treatment of defined benefit pensions in relation to the cap. The application of the cap differs depending on whether the pension is sourced from taxed funds (generally private sector funds and some public sector ones) or from untaxed sources (some public sector funds). If you are unclear if your pension account fits one of these descriptions contact your superannuation fund and they can confirm.
You can establish if a defined benefit pension will be valued at over the transfer balance cap limits by multiplying the amount received annually by 16. Therefore if you receive a pension from a defined benefit fund at or over $100,000 you will be considered as using up all of your cap.
The taxation treatment is therefore as follows:
Untaxed Defined Benefit Pensions – 100% of pension amounts over $100,000 will be included in the taxpayers assessable income taxed at marginal rates, and the 10% offset available will be capped at $10,000.
Taxed Defined Benefit Pensions – 50% of pension amounts over the current cap of $100,000 will be included in the taxpayers assessable income at marginal rates, no offset is available.
Should you wish to discuss your pension obligations please feel free to contact Andrew Marshall or Janine Orpwood on 5427 8100 for an initial consultation.