Assuming that the general transfer balance cap will lift from $1.7m to $1.9m from 1 July 2023 we will need to address the affect this will have on a member’s personal transfer balance cap (PTBC).

The PTBC relies on the highest transfer balance ever reported, commutations have no effect. The added complication is that this is the second indexation event.

The effect is quite easy to determine if the member:

• has already maxed out their cap – there will be no indexation to their present PTBC or
• will commence their first pension from 1 July 2023 – it will be $1.9m

It’s not so easy where this does not apply. There are 3 alternative scenarios.

Scenario 1

Pension commences before the first indexation event ($100k on 1/7/21) and no others have commenced since then.

The PTBC will increase by the percentage based on the $1.6m cap. So, if a pension had commenced prior to 1/7/21 with $960k (60% of $1.6m) then $40k (40% of the $100k indexation amount) would apply and their PTC would be $1.64m until 1/7/23. As no new pensions have commenced, the same percentage that applied to the first indexation, 40%, would apply to the next so 40% of $200k ($80k) would be added thus creating a PTBC of $1.72m. As $960k has been used an additional pension may be commenced with $760k.

Scenario 2

Pension commences, for the first time, after 1/7/21 when the GTBC is still $1.7m.

If the commencement value was $1.02m (60% of $1.7m). From 1/7/2023 their PTBC would be increased by $80k (40% of $200k) to $1.78m. As $1.02m has been used an additional pension may be commenced with $760k.

Scenario 3

Pension commences before the first indexation event ($100k on 1/7/21) and another commences after the first indexation event but before 1/7/23.

The PTBC will firstly increase by the percentage based on the $1.6m cap. So, based on the first scenario, the PTBC would be$1.64m after the first indexation but now an additional pension commences with $352k before 1/7/23. The highest TBA is now $960k + $352k = $1.312m. The percentage of the PTBC that has been used is recalculated based on the PTBC at the time ($1.64m). As 80% of $1,64m has been used the indexation that will apply is 20% of $200k ($40k) so the new PTBC will be $1.68m. As $1.312m has been used an additional pension may be commenced for $368k.

Note

It may take a while before the exact PTBC has been calculated by the ATO as they will need to have received all relevant TBARs that apply to the period up to 30/6/2023. This should be by 28/10/2023 but there will always be some stragglers.

Also note that reversionary pensions will not affect the recipients TBA until a year after the death of the primary pensioner so, where this has occurred this financial year, the recipient will avoid the inclusion of the new pension in their indexation calculation.

Simple stuff hey!