Impact of transfer balance cap

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The different types of defined benefit pensions are valued differently under the transfer balance cap. The two complying defined benefit pensions are classified as ‘capped defined benefit income streams’ and the flexi pensions are valued under different rules.

Complying lifetime defined benefit pensions

The value of a complying lifetime pension that count towards the transfer balance cap is the special value of the pension calculated as at 30 June 2017.

Special value = Annual entitlement * 16

Complying life-expectancy defined benefit pensions

The value of a complying life-expectancy pension that count towards the transfer balance cap is the special value of the pension calculated as at 30 June 2017.

Special value = Annual entitlement * Remaining term (rounded up)

Commutable defined benefit pensions (Flexi pensions)

The ATO has confirmed that to determine the value of a flexi pension under the transfer balance cap, the income stream should be valued using the valuation factors set out in Schedule 1B of the ITAR 1997.

ATO interpretation

Schedule 1B of the ITAR 1997

However, when looking to commute a flexi pension, trustees should use the pension valuation factors in Schedule 1B of the SISR to determine the maximum allowable commutation amount.

Schedule 1B of the SISR 1994


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