In the realm of Self-Managed Superannuation Funds (SMSFs), the Transfer Balance Cap (TBC) stands as a pivotal player. This cap, which sets limits on the amount of capital transferrable to the retirement phase of super, has undergone dynamic changes since its inception on 1 July 2017. Most notably, on 1 July 2021, it expanded from the original $1.6 million to $1.7 million, and further grew to $1.9 million on 1 July 2023.
But the TBC isn’t just about numbers; it also affects what happens to your money when you’re not around anymore. It has a say in what your family or loved ones get from your retirement savings after you pass away. This is where things get interesting for planning your estate (which means deciding who gets your things after you’re gone).
Here are a few simple things to think about when it comes to the TBC and planning for after you’re gone:
> If your death benefit will be paid as a death benefit pension, your beneficiary’s TBC will be relevant in determining how much can be paid as a pension to them. Any excess death benefit above their TBC must be paid as a lump sum to them. This limits the amount of money that can be retained within the superannuation environment upon your death.
> Where your dependant has already used some of their TBC, you may need to consider strategies that maximise the amount of your benefits that can remain in the SMSF on your death and minimize the amount that would need to be paid to your beneficiaries as a lump sum.
> The special rules that delay when the reversionary pension counts towards the new recipient’s TBC and the differences between how reversionary and non-reversionary pensions are counted towards the new recipient’s TBC.
> The special rules that operate to modify the TBC of a child in receipt of a death benefit pension to ensure that their personal TBC is not exhausted.
> The ability for a recipient of a death benefit pension to rollover the pension to another super fund (note, to satisfy the regulatory rules, a new death benefit pension must be commenced in the new fund or the amount must be withdrawn from the superannuation environment as a lump sum death benefit).
Because the TBC can have a big impact on your retirement savings and what happens after you’re gone, it’s really important to get help from experts. They understand all the rules and changes, and they can guide you in making the best decisions for you and your family. Planning for what comes after you’re gone involves more than just money – it’s about making sure your loved ones are taken care of in the way you want.
Credits:
Sundaram Shanmugam
SMSF Team
