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GFC-like events will test concrete $1.6m cap

The fixed nature of the government’s proposed $1.6 million transfer balance cap has come under fire for overlooking the significant repercussions it will have if major market fluctuations occur, including another global financial crisis (GFC)-like event.

“The government has said very strongly that the $1.6 million cap is absolute and if there were some market fluctuations, you don’t get to put any more in,” SMSF Association head of policy Jordan George told the association’s 2016 State Technical Conference in Sydney.

“I would like to see what happens if we have an adverse [market movement] and someone puts in $1.6 million [into their pension], but due to a GFC-style event, the next month they have $1 million left.

“I’d like to see how the government will look at that when they’re saying they will not let us put in any more money in the retirement phase.”

George named the measure as a major “what we don’t know” concern for the industry and SMSF trustees.

“The main feedback we’re hearing from SMSF Association members, SMSF trustees and the general public is that there’s probably less anger about this measure [compared to the others], but there’s more worry around how it’s going to be implemented,” he noted.

“This is something we’re obviously keeping an eye on in the future.”

In addition, he labelled the cap of $1.6 million on pension-phase balances as the most complex legislation out of the budget changes.

A poll of the room found the majority agreed, with “it is going to be overly complex to administer” chosen as the strongest opinion on the measure.

Other poll options were that it is a sensible measure that will make superannuation sustainable for the long term, the limit is not high enough to guarantee a secure retirement, and no limit on tax-free super in retirement is better.

The government planned to introduce the $1.6 million cap from 1 July 2017, according to the budget papers.

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