Existing death benefit pensions, transfer balance caps and the ATO lifeline – PCG 2017/631 May 2017 Topics: Tax and revenue, Superannuation, Professional advisers
The transfer balance cap rules still apply to a pension that is a death benefit pension.
However, a death benefit pension that started before 1 July 2017 continues to be a death benefit, so any commutation of a death benefit pension can only be to a lump sum. The recipient cannot commute any part of the death benefit pension back to accumulation phase.
This means the balance of a death benefit pension over the transfer balance cap at 1 July 2017 must leave the superannuation system as a lump sum, and cannot be commuted back into accumulation phase.
This has led to some confusion, and to some concerns about past industry practices for dealing with death benefit pensions, particularly where it is not easy to separate the member’s own funds from their death benefit pension.
The ATO has thrown a lifeline to death benefit pensions in PCG 2017/6. In it, the ATO say they will not take any action where the amount over the transfer balance cap in a death benefit pension is commuted back to accumulation phase for the recipient (as opposed to being paid as a lump sum) if:
- the recipient was the spouse of the deceased at their date of death;
- the commutation occurs before 1 July 2017; and
- the lump sum is a member benefit under section 307-5(3), which contains the times that must elapse after death before the commutation occurs (broadly more than 6 months after death and 3 months after probate is granted, unless there are delays in payment for particular reasons or the ATO has extended it).
This provides a one off opportunity for recipients of death benefit pensions to leave the excess over the transfer balance cap within the superannuation system, rather than forcing it out of the superannuation system as a lump sum. In some cases this can result in a significant amount remaining in the superannuation system rather than leaving it.
This is a significant concession from the ATO and advisers should be aware of and taking advantage of it where appropriate.
The same relief has not been provided for other death benefit pensions such as a child pensions.