Maximising the $1.6m Pension Cap

From 1st July 2017, the amount of capital that a member can have in the tax-free retirement (pension phase), is limited to $1.6 million. This means the pension earnings exemption only applies on $1.6 million of the member’s superannuation balance, and the earnings on the excess superannuation balance is subject to the normal 15% tax.

Implementation process:

• Ensuring only the minimum pension payments are drawn, and any additional payments withdrawn are taken as a partial commutation. Partial commutations increase the members ‘cap space’ by the amount of the payment, and allow for the future transfer of additional funds into the pension phase.
• Ensuring that where a pension asset is financed via a Limited Recourse Borrowing Arrangement, that all loan repayments are made from pension assets (funds).  Otherwise, if loan repayments are made from accumulation assets, the pension cap will be reduced by the amount of the loan repayments made.
• Contributing Structured Settlement Contributions to the pension account (as they are excluded from the $1.6m pension cap). 
• Contributing Super Contributions from Downsizing to the pension account (as they are excluded from the $1.6m pension cap). A person aged 65 or over can make a non-concessional contribution into superannuation of up to $300,000 from the proceeds of selling their principal residence (if they have owned it for at least 10 years). This is available to both members of a couple for the same home.