Superannuation Reforms (2016-17 Budget)

The Australian Government’s Fair and Sustainable Superannuation reforms, announced in the 2016-17 Budget, made a number of changes to the superannuation system. Below are frequently asked questions regarding the effect that these reforms may have on members of the Parliamentary Contributory Superannuation Scheme (PCSS).

The changes to superannuation are broad and complex. The following FAQs are intended to provide assistance but if you think you are affected or may be in the future, consider seeking financial advice.

Frequently Asked Questions

Serving Parliamentarians

Concessional Contributions Cap

What is the Concessional Contributions Cap?

The concessional contributions cap is a limit on the amount of contributions that receive concessional tax treatment in a scheme.

What is the amount of the Concessional Contributions Cap?

From the 2017-18 financial year, the annual concessional contributions cap will be lowered to $25,000.

What contributions count towards the Concessional Contributions Cap?

From 1 July 2017, the value of unfunded employer contributions in relation to the PCSS will be counted towards your concessional contributions cap.

Where the value of these contributions exceed the cap they will not be treated as excess concessional contributions. This is because these contributions are subject to taxation when the member’s benefit is paid.

The value of your PCSS concessional contributions will be included in your PCSS Annual Statement. The Australian Taxation Office will be assessing your concessional contributions for a financial year across all of your superannuation memberships. You should therefore contact the Australian Taxation Office for advice on whether you are going to exceed your concessional contributions cap.

Example

Barry is a member of the PCSS. His unfunded defined benefit contributions in respect of the scheme for 2017-18 are $35,000. Although, this exceeds the $25,000 cap, the contributions will be treated as being equal to $25,000. This means Barry will not be subject to any taxation penalties for exceeding the cap.

Division 293 Income Threshold

The superannuation reforms also affect the Division 293 tax, which relates to the Government measure announced in the 2012-13 Budget to reduce the superannuation tax concessions of very high income earners. From 1 July 2017, the income threshold at which high-income earners pay Division 293 tax will be reduced from $300,000 to $250,000.

The value of the unfunded defined benefit contributions in respect of the PCSS will be included as part of the income threshold test. This value will be provided in your PCSS Annual Statement.

Non-Concessional Contributions Cap

What is the Non-Concessional Contributions Cap?

The non-concessional contributions cap is a limit on the amount of non-concessional contributions that can be made into a superannuation scheme or fund.

The annual non-concessional contributions cap is four times the annual concessional contributions cap. This equals $100,000 (4 x $25,000) in the 2017-18 financial year.

Where an individual has a total superannuation balance of $1.6 million or more as at 30 June of the previous financial year, (that is, 30 June 2017 in respect of the 2017-18 financial year) the cap is reduced to zero.

Your total superannuation balance includes your accumulation phase value. This is the superannuation benefit that would become payable under the Parliamentary Contributory Superannuation Act 1948 if you voluntarily caused your superannuation interest to cease at 30 June 2017, even though your interest is not currently in the retirement phase.

What contributions count towards the Non-Concessional Contributions Cap?

Non-concessional contributions are personal post-tax contributions for which you do not claim a tax deduction, often called member contributions.

Member contributions are required to be made to the PCSS, even if your non-concessional contributions cap is zero.

You may be able to make non-concessional contributions to other superannuation schemes but this would be subject to meeting the requirements set out above.

Where can I get more information?

General information about the superannuation reforms can be found on the Australian Taxation Office website at https://www.ato.gov.au/individuals/super/super-changes/

Retired Parliamentarians

Transfer Balance Cap

What is the Transfer Balance Cap?

For a member of the PCSS at least 60 years of age, your transfer balance cap is a limit on the amount of a superannuation pension for which you can receive a tax offset.

How does the Transfer Balance Cap apply to the PCSS?

Your transfer balance cap is $1.6 million for the 2017-18 financial year. PCSS pensions are counted towards your transfer balance cap. Where the value of the pension exceeds the transfer balance cap the availability of a 10 per cent tax offset applicable after age 60 may be restricted (refer question on how your pension will be taxed).

When does it apply?

The transfer balance cap will apply from 1 July 2017 if you are receiving a pension from the PCSS, or when you commence receiving a pension from the scheme.

The Department of Finance will calculate a value for your pension being paid from the PCSS and report this to the Australian Taxation Office. If other schemes are paying you a pension, the administrator of those schemes will provide their own information regarding the value of your pension from those schemes to the Australian Taxation Office.

Ongoing management of your transfer balance cap is a matter between you and the Australian Taxation Office.

How is my pension valued?

Your pension will be valued as follows:

Example

On 30 June 2017, Susan has a PCSS pension.
Susan receives a fortnightly before tax pension payment of $4,000 for 14 days.

The annual entitlement is worked out as follows:

$4,000

x 365 = $104,285.71

14

 

Applying the multiplication factor of 16 means the value is $1,668,571.36. If Susan has other pension phase funds, the Australian Taxation Office will advise her to move these back into accumulation or withdraw them from superannuation.

What happens when my pension is increased (indexed) after it’s valued?

Your pension will not have a new value calculated each time your pension increases. Generally, only the commencing value (or the value at 30 June 2017 for existing pensioners) will be reported against your cap.

How will my pension be taxed?

If you are 60 years of age or older when you commence receiving a PCSS pension, the first $100,000 per annum of your pension may be eligible for a 10 per cent tax offset, subject to the amounts of the tax-free and untaxed amounts. However, the 10 per cent offset will not apply to the amount of a pension over $100,000.

Example

Mark, who is 61, receives a pension of $110,000 from the PCSS. His pension comprises a tax-free amount of $30,000 and an untaxed amount of $80,000.

Prior to 1 July 2017 , the $30,000 tax-free amount of Mark’s pension is not assessable income. The $80,000 untaxed amount is included in Mark’s assessable income and attracts a 10 per cent offset of $8,000.

From 1 July 2017 , the tax-free amount of $30,000 is counted towards Mark’s $100,000 defined benefit income cap. $70,000 of the untaxed amount is also counted towards the cap, the combination of these amounts exhausting the defined benefit income cap. Mark is not entitled to a 10 per cent tax offset for the remaining $10,000 untaxed amount of his pension. Mark’s tax offset is therefore limited to $7,000 (10 per cent of the $70,000 untaxed amount that comes within the cap).

The $100,000 threshold is reduced where a pension is commenced part way through a financial year.

If you are under 60 years of age, the tax-free amount is not assessable income. The untaxed amount of your pension is included in your assessable income with no offset.

These tax outcomes are in place of pension members of the PCSS having to remove amounts from the scheme to reduce an excess transfer balance. This is because a capped defined benefit pension such as a PCSS pension cannot result in an excess transfer balance.

While the PCSS does allow the payment of lump sum benefits, these are not included in your transfer balance account. Enquiries about the taxation of lump sum benefits should be referred to the Australian Taxation Office.

How does this apply to death benefit pensions?

On the death of a member of the PCSS, a reversionary pension may be paid to a beneficiary. The commencement of the pension will result in a credit to an existing or new transfer balance account for the beneficiary.

The taxation of a reversionary pension in relation to the tax-free and untaxed elements is the same as for a non-reversionary pensioner aged at least 60 years, where the member died aged 60 years or older, or the dependant is aged 60 years or older (refer above example for taxation). This taxation treatment also applies where the deceased member is aged 60 years or older but the dependant is aged under 60 years.

If the member died aged less than 60 years, and the dependant is also aged under 60 years the tax free component is not assessable income. The untaxed element of the pension is included in the assessable income of the dependant beneficiary with no offset.

What if I have other pension products?

The transfer balance cap is a single lifetime cap applied to an individual, and applies to all amounts received in the retirement phase. If you have more than one pension, each will be valued and reported by the respective superannuation administrator to the Australian Taxation Office. If you have an account-based pension(s) then you should contact the relevant fund and the Australian Taxation Office for advice on what action you may need to take in relation to your account-based pension(s).

Does the Transfer Balance Cap limit how much I can contribute?

No, the transfer balance cap only affects the tax treatment of your pension.

Will the Transfer Balance Cap be indexed?

Yes, the transfer balance cap will be indexed periodically in $100,000 increments in line with the CPI. If your pension is less than the cap, indexation will only apply to the unused portion of the cap. However, once you have reached your cap, indexation will not apply.

Example

On 1 July 2017, Deborah commences a PCSS pension with a value of $1.2 million. Therefore Deborah’s unused cap percentage is 25 per cent of $1.6 million ($400,000).

In 2020-21 assume the general transfer balance cap is indexed to $1.7 million. Deborah’s unused cap of 25 per cent is applied to the $100,000 increment by which the general transfer balance cap is indexed. This results in an increase of $25,000. Therefore Deborah’s new personal transfer balance cap is $1.625 million rather than $1.7 million.

If Deborah transfers $425,000 ($1.625 million less $1.2 million) held in another scheme into an account-based pension account she will use all her available cap space. From that time, her transfer balance will not be subject to further indexation.

Do these changes mean I can now commute my pension to a lump sum?

There have been no changes to PCSS rules to allow a member to commute their pension to remove an amount in excess of the transfer balance cap.

However generally a person will still able to commute up to 50 per cent of their pension to a lump sum within three months after starting to receive the pension.

Do lump sum payments count towards the cap?

Any lump sum benefit paid to you from the PCSS will not count towards the transfer balance cap.

Where can I get more information?

All enquiries on the superannuation arrangements for the PCSS can be directed to telephone (02) 6215 3676 or email at parlsuper@finance.gov.au.

Last updated: 23 May 2017