BT’s Advice Technical team noted in a statement that the top queries for the December quarter were around defined benefit pensions and the $1.6 million transfer balance cap.
BT technical consultant Tim Howard said that the fastest growing area of inquiry from advisers has been around clarification of non-account based pensions, particularly defined benefit pensions.
“As defined benefit pensions generally have no lump sum equivalent, we’re seeing growing interest around how they will be treated and, particularly, how it will interact with the $1.6 million cap,” he said.
Mr Howard said the defined benefit pension, for the purpose of the $1.6 million transfer cap, is calculated by multiplying the annual income stream by 16, if it’s a lifetime pension, or by its remaining term if it’s a fixed term pension.
“For example, if a lifetime defined benefit pension pays a client an initial annualised payment of $90,000 it’s equivalent to a value of $1.44 million,” he said.
“This means the client has $160,000 of wriggle room before reaching the $1.6 million cap.”
Further, Mr Howard noted adviser misconception around the $1.6 million cap, saying it is mistakenly referred to as the limit around how much a client can save in super.
“The $1.6 million represents the figure in retirement phase, after which any excess needs to be moved back to the accumulation phase, where it will be subject to 15 per cent tax on earnings, or removed from superannuation,” Mr Howard said.
“In addition, and as a separate measure, individuals who have greater than $1.6 million in superannuation will no longer be able to make non-concessional contributions from 1 July 2017.”
