Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 189

Monica's Q&A on $1.6 million super rules

[Editor’s Note: Monica’s article last week generated many comments on the website and questions by email. She has kindly agreed to address most of these, but with her heavy workload due to the super changes, Monica will probably not be able to respond directly to further questions and Cuffelinks is not licensed to provide personal financial advice.

Readers are welcome to make further comments but those with specific issues should consider registering for Monica’s webinar (payment required) where more answers will be provided].

Monica’s responses to questions raised from her article “Navigating super law changes with confidence”.

Gary: I must be missing something. Many experts say things like “Amounts above the cap need to be moved to the accumulation phase or taken out as a lump sum.” I thought any amount could be left in an SMSF and if the balance is above $1.6 million, an actuary will determine how much tax is payable. There is no ability to segregate, but nor is there a requirement to move money out to an accumulation account. It can stay in one account.

Monica: It is the ATO that will calculate the notional earnings on the amount in excess of the $1.6 million transfer balance cap. The tax payable on the notional earnings is 15% for 2017/2018 and is imposed on the notional earnings from the date of the contravention until the date the excess is removed from the pension account. An SMSF member with a superannuation balance in excess of $1.6 million, who is receiving a pension, will not be permitted to use the segregated method. There is no restriction on the amount of money you can have in an accumulation account.


Gordon: From what I understand an SMSF member can have one accumulation account and multiple pension accounts. So I’m assuming any excess over $1.6 mil is transferred from the pension account(s) to the accumulation account. What I’m wanting to know is if new Pension documentation needs to replace the existing ones?

Monica: You are correct in that an SMSF member can have one accumulation account and multiple pension accounts where the combined total of the pension accounts do not exceed the $1.6 million transfer balance cap. New documentation will be needed if the capital amount in a pension account has changed due to the transfer balance cap.


Alan: Further to the above comment, if the amount in total is over the $1.6 million and not segregated, the process is the actuarial report to determine the tax payable each year. In this circumstance is the amount of $1.6 million capped and not allowed to be indexed each year?

Monica: Please be aware that you can only have up to $1.6 million in retirement phase from 1 July 2017. Only members with up to the $1.6 million superannuation balance can use the segregated method for their pension account. An actuary can be used to calculate the proportion of the unsegregated assets that are funding the accumulation phase and pay tax accordingly. Also, once a member has reached their $1.6 million transfer balance cap, they are not entitled to any increase in the indexed amount of the cap.


Rick: Firstly, if a SMSF currently has segregated accounts with two pensions which add up to more than $1.6m, the excess has to be transferred to accumulation. If one of those pensions is 100% tax free component, how is this accounted for in ensuing years? This is important because 100% tax free pensions are passed tax free to non dependants on death.

Monica: If you have multiple pension accounts, you can elect from which pension account you wish to move assets to your accumulation account. Therefore, members under the age of 60 may prefer to commute the pension with the higher taxable component to minimise the tax payable on their pension income. Just remember that once a member has more than the $1.6 million superannuation balance, they will not be able to apply the segregated method to their pension from 1 July 2017. The individual pension accounts can continue to maintain their own tax free and taxable components. The pension that is 100% tax free will remain that way from 1 July 2017.


Rick: Secondly, can a fund decide to transfer excess assets from pension to accumulation at any time up to 30 June and lock in the CGT concession (or not, if it is in a loss position), or must it be done on 30 June?

Monica: If your SMSF is using the segregated method, you can choose when you want to move an asset from the segregated pool to the accumulation pool. The CGT relief can apply from the date the asset is moved. The cost base of the elected asset will be reset on the date the asset is moved. If your SMSF is using the unsegregated method, then the CGT relief and cost base reset will apply on 30 June 2017.


Rick: Thirdly, if segregation is not allowed after 30 June, does the $1.6m increase/decrease in value in accordance with the overall fund’s performance? Are cash flows into (eg contributions) and out of (eg pension payments) taken into consideration when calculating the ongoing value of the $1.6m. Or does the $1.6m remain constant?

Monica: The contributions into your accumulation account and pension payments from your pension account do not alter your transfer balance account. They are not treated as credits or debits in the account.


RB: Is it correct that anything in excess of $1.6m pension cap after 1/7/17 i.e. in accumulation has to be removed from being held in superannuation on the death of a spouse if the reversionary beneficiary has in excess of the $1.6m already? I understand the $1.6m from the deceased spouse could be held in the remaining spouse’s accumulation account. Do you have to continue to take the minimum % from the deceased spouse’s pension?

Monica: A death benefit pension received by a reversionary, dependant beneficiary will count towards the dependant’s transfer balance account. It will count 12 months after the deceased’s date of death if it is a reversionary pension. If it is a non-reversionary pension, then it will count on the date the death benefit is paid to the dependant. If the combined value of the dependant’s pension account and the reversionary death benefit pension account exceeds $1.6 million, then the dependant can reduce either of the pensions and pay the excess as a lump sum benefit. If the deceased’s superannuation has to be reduced/commuted to accumulation phase, then it cannot remain in the dependant’s accumulation account. It must be paid out otherwise it will contravene the regulatory requirement to cash the death benefit as soon as practicable. If the dependant’s pension account has already reached $1.6 million, then the dependant cannot receive a reversionary death benefit pension without reducing their pension account to below $1.6 million. This means any excess of the death benefit must be paid out as a lump sum and cannot be maintain in the dependant’s accumulation account.

In answer to your second question, you will have to continue to meet the minimum pension payment requirement of both pensions.


John: Does the deceased’s pension remain in pension mode (ie zero tax) for the 12 months after death?

Monica: Yes, if the deceased was in receipt of a pension that will revert to a nominated dependant beneficiary.


Bruce: Hi Monica, My future investment plans depend greatly on the following:

a) Excluding partial commutations, post 2017 if the value of assets in my pension account fall below $1.6m (e.g. another GFC) under what circumstances can I transfer money in from my accumulation account to bring the balance back to $1.6m?

Monica: You cannot top-up your $1.6 million transfer balance in any way if your pension account experiences poor investment performance or is reduced due to pension drawn downs. Partial commutation is the only way that your transfer balance cap can be reduced. Of course, situations such as fraud, bankruptcy claw backs, and family law splits can also reduce your transfer balance account.

b) Can I segregate my superannuation holdings into two separate accounts – pension and accumulation – so that they are treated independently?

Monica: From 1 July 2017, you can only use the segregation method if your superannuation account balance is below $1.6 million and your pension account balance is also below $1.6 million.

If (a) is not possible I shall need to adopt a very conservative investment policy for funds in the pension phase.

If (b) is possible, I can consider stable income investments in my pension account and growth investments such as equities in my accumulation account.

Monica: Perhaps speak to a financial adviser on how to position your assets.

Given that members of defined benefit schemes are guaranteed no reduction in their pension payments during their lives, it would seem unfair for the government to treat self funded retirees differently. There is a good chance that some pension accounts will be adversely affected by financial events over the next 30 years or so.


Monica Rule is an SMSF Specialist and she will be running a webinar on the superannuation changes on 23 February 2017. For more information, see This article is an understanding of the rules current at the time of writing, this article is not personal financial advice and does not consider the circumstances of any individual.

May 11, 2018

Hi Monica

What happen if a pension account hold more than $1.6m after the 30th of June 2017.

April 16, 2017

Hi, if a grandchild that is a minor receives a death benefit pension as a financial dependent on a grandparent (ie not a child pension) Is the grandchilds tranfer balance cap impacted given there is no requirement to cash the pension out at age 25?

Tim Lane
February 13, 2017

With regard to real property assets in an SMSF and total balance inclusive of property close to or exceeding $1.6M cap, would it be preferable this year to have an independent valuation of the property on file assessing the value and the market rent?

February 14, 2017

Not only preferable but possibly compulsory as you have to value assets at current market value for $1.6m limit. The ATO will be watching the valuations of property closely.

John Wilson
February 12, 2017

I'm not sure I agree with your response to Rick's question about selecting which pension is reduced to transfer excess over $1.6m to accumulation.

You answered the question with a reference to an under 60, and said to commute the pension with highest % pre-tax.

However, I think it is irrelevant how much pretax there is in a pension or accumulation while the "owner" is alive. It only becomes relevant in calculating death duties when the funds are passed to a non-dependant beneficiary. It seems to me that it would be preferable to leave the maximum pre-tax funds within pension mode where they will be decreased each year by the compulsory minimum % pension. That would ultimately reduce the death duties payable.

My comment above assumes that both accumulation and pension funds are treated the same way in the hands of a beneficiary. Is that the case?

John Wilson

February 14, 2017

John remember that earnings on funds in accumulation phase get added to the taxable component so this may defeat your strategy. Depends if earnings rate of your investments exceeds your minimum drawdown %.

Keith Ralph
February 10, 2017

I hold both defined benefit and pension type superannuation with the total of both well over the 1.6M cap, how do I value the defined benefit portion as a lump sum?

February 14, 2017

Keith I believe the rule will to multiply your DB annual pension by a factor of 16 to get the capital value to be counted in the $1.6m. Ask your provider for clarification.

February 09, 2017

Hi Graham
Looking forward to the answer to CF's question. For investors whose pension accounts are over $1.6m I am struggling to understand the legislation.

On the one hand by 30 June 2017 we are required to move any balance above $1.6m into an accumulation account. On the other hand your experts are saying that if you have over $1.6m in your pension account you cannot segregate the assets into a pension and an accumulation account.

Furthermore, in order to achieve the $1.6m cap may be difficult if you have several pension accounts and a defined benefit pension. If your assets are in equities and there is a sharemarket correction on 30 June you could find that your pension fund ends up being only $1.4m.

February 09, 2017

'Can I segregate my superannuation holdings into two separate accounts – pension and accumulation – so that they are treated independently?'

Is this assertion correct?
What can be done is to establish a separate fund for the accumulation amount and leave the $1.6m in the pension fund. I.E. Two funds as opposed to two accounts in the same fund.
In this way one can 'segregate' the funds?

Wit ha low cost SMSF admin provider being less than $1,000 PA it could make sense to consider this. I'm surprised that there has been little comment about this strategy. Maybe I'm mistaken?

Graham Hand
February 09, 2017

Hi CF, we expect to publish an article on this subject next week.

Graham Hand
February 05, 2017

Thanks for the question, JK. Monica is especially busy with all the changes underway, and may not be able to respond directly to more questions for a while.

February 05, 2017

With reference to Monica's statement 'reversionary pensions are not counted towards the cap until 12 months after the deceased member's death', would it be possible to advise what will happen in the following circumstances-similar to our own and I suspect many others where a couple both have DB pensions and both have smsf accounts.

Assume John has a DB pension of $60k and $1m in super whilst partner Mary has a DB pension of $40k and $800k in super. On the death of the first partner, the surviving partner gets 60% of the passing partner's DB pension.

Regardless of which partner dies first, there is ZERO capacity for any of the passing partners smsf super to remain in pension phase.

So the question is that if the surviving partner can continue with a reversionary pension for the next 12 months, can the passing partner's super then be rolled back into accumulation phase or must it leave super altogther? Since super is an individual account then my core asumption is that there is no way that the passing partner's super can remain in super.

The answer has obvious implications for Estate planning, at least in my circumstances where our current wills and Death benefit nominations are directed to each other whilst the idea was to pass any remaining super to our adult non dependent children with options for them to establish discretionary testamentary trusts.

Of course I will be seeking advice of this from my financial planner but your opinion would be appreciated please.

February 14, 2017

Jk, there are some strategies now being explored to keep more of the deceased spouses benefit in super. One is for the surviving spouse to comute their non-DB pension to accumulation so they can receive the pension benefit from the deceased spouse and keep as much as possible in Super. Please seek personal advice.


Leave a Comment:



Indexation complication! Four changes you need to know

Final sprint to three major super changes

Five urban myths about super changes


Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.


2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.


Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.


What were the big stockmarket listings in record 2021?

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.


Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.