The high level of inflation will push the general transfer balance cap (TBC) to $1.9 million, opening up new planning opportunities for SMSF members who are close to reaching, or have already reached, the current limit of $1.7 million.
The Australian Bureau of Statistics today released its latest inflation figures showing a consumer price index (CPI) of 7.8 per cent for the December quarter 2022, which is high enough to result in a double indexation of $200,000 and raising of the general TBC to $1.9 million from 1 July 2023.
Colonial First State head of technical services Craig Day said the increase was based on a calculation involving inflation and the initial TBC of $1.6 million.
“The way we index the TBC is to base it on the December quarter CPI figure of the prior year and at 30 June this year that will be the figure for December 2022,” Day said.
“We then divide that by the December quarter figure for 2016, used in 2017 when the TBC was introduced, and multiply by $1.6 million and round that to the nearest $100,000 for the level of indexation, which will be rounded down from $1,902,400.”
SMSF Association technical manager Fabian Bussoletti said given that proportional indexation is used to calculate an individual’s personal TBC, the amount some will be able to transfer into retirement-phase pensions will increase significantly, while others will see no change at all.
“Someone who has not, and will not have, before 1 July 2023 commenced a retirement-phase income stream will enjoy the full benefit of a $200,000 increase to the TBC,” Bussoletti said.
“On the other hand, someone who has already fully utilised their TBC before this date will not receive any personal benefit from the upcoming increase to the general TBC.
“For the many individuals in between, the level of indexation they receive will depend on their highest percentage usage. This complex minefield means it will be quite unusual for any two people in this cohort to share the same personal TBC value in the years to come.”
Day said the announcement of the indexation changes early in the year will allow people looking to start a pension to reconsider if that should happen after 1 July 2023.
“Anyone who starts a pension before that date will receive a permanent TBC of $1.7 million, but after 1 July it will be set at $1.9 million,” he said.
“This also means for people with a transition-to-retirement income stream pension, they may wish to turn it off before 1 July or shift it back into accumulation. If they turn 65 after that date, the TBC will be $1.7 million, but if it is turned off and started later as an account-based pension, they will be able to have a $1.9 million TBC.”
