The budget has given a strong indication that indexation of the transfer balance cap (TBC) will happen again with the cap likely to rise to $1.9 million creating new planning opportunities for those retiring in the coming year, according to a superannuation technical expert.
An economic outlook within Budget Paper 1, released last week, stated “annual inflation is expected to peak at 7.75 per cent in late 2022, before moderating gradually to 3.5 per cent by June 2024 and returning to the Reserve Bank’s inflation target by 2024/25”, which is 3 per cent according to the bank’s most recent monetary policy.
Based on these figures, Colonial First State head of technical service Craig Day predicted the TBC will be indexed upwards with it being high likely a $200,000 increase will occur, in turn lifting the general TBC to $1.9 million.
“The way we index the TBC is to base it on the December quarter CPI figure of the prior year and if we fast forward to 30 June 2023, that will be the figure for December 2022.
“What we’ve seen in the budget and Reserve Bank statements is they are predicting a rate of inflation by the end of the year of 7.75 per cent and going back to the December CPI figure for 2021 of 121.3, if we gross that up by 7.75 per cent the result is 130.7 for the December 2022 quarter,” Day said.
“This will result in an indexation increase of $200,000 because it takes the TBC figure to $1,901,000.
“If the rate of inflation is higher, then the TBC will still just be $1.9 million as it is raised in $100,000 increments. But if it’s slightly lower, then the increase may not be [to that degree] but it is going to be close.
“If that is the case there would be a large benefit for people with very large super balances planning on retiring in the first six months of next year putting off commencing their first retirement phase income stream until after 30 June to ensure they get a TBC of $1.9 million instead of $1.7 million
Day noted any increase in the general TBC will also create a wider range of personal income stream caps.
“The range of personal TBCs will depend on when someone originally commenced their account-based pension and how much [of the cap] they have utilised and what the benefits of proportional indexation are,” he explained.
“Everyone will continue to have their own TBC but the proportional indexation is going to be very complicated for people.
“It was complicated enough [before], but now we are dealing with two lots of indexation and a possible increase of another $200,000 so those calculations are going to be horrible for people to try and figure out what their personal transfer balance [cap] is.”
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