Superannuation members with a pension account balance of more than $1.9 million can still commence an income stream in limited circumstances as some of the governing rules allow them to sidestep this limit, according to an SMSF compliance firm.
SuperCentral self-managed superannuation executive consultant Michael Hallinan noted it was not generally possible to commence a pension where the initial account balance was over $1.9 million, which is the current general transfer balance cap (TBC), but this did not apply with a transition-to-retirement (TTR) pension.
Hallinan pointed out that since a TTR income stream does not receive the earnings tax exemption, the transfer balance account (TBA) rules did not apply and so the TBC was not relevant.
“Consequently, it is possible to commence a TTR pension with an account balance of say $2.5 million, but why do so if the earnings tax exemption does not apply?” he said.
“The primary benefit is to access the pension account when the pension account is still preserved. It is possible to access, from a preserved account of $2.5 million, from $100,000 to $250,000.”
For this to happen, the member must have attained age 60 when the pension commences and the minimum and maximum amounts stem from the TTR pension meeting the minimum drawdown requirement, while also being subject to a ceiling of 10 per cent of the initial pension balance and an ongoing 10 per cent ceiling of the pension account balance each financial year.
However, Hallinan added this strategy would only apply until the member reached age 65, at which time the TTR pension would be subject to the earnings tax exemption and the TBA rules would apply and the TBC at that time would also apply.
“This may result in the pension having an excess transfer amount and the pension will have to be partially rolled back or cashed out to remove the excess amount,” he said.
He also highlighted the $1.9 million limit did not come into play when a member had a negative TBA before the pension commenced.
This could occur if the member had previously commenced a retirement-phase pension and exhausted their TBC and ‘rolled over’ the pension to another super fund with the current pension account balance.