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Act On Wealth Team | January 27, 2025

Navigating Legacy Pensions and Transfer Balance Cap Compliance


Legacy pensions, like defined benefit pensions and market-linked income streams, have unique rules regarding the Transfer Balance Cap (TBC). Understanding these interactions is crucial for compliance and tax efficiency. Legacy pensions provide fixed payments and do not allow lump sum withdrawals. They may affect your TBC, reducing available credits for other retirement products. Monitoring payments and considering strategic planning can help optimise your retirement savings. Seek expert advice to navigate these complexities and ensure your financial future is secure.


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Legacy pensions, like defined benefit pensions and market-linked income streams, have unique rules regarding the Transfer Balance Cap (TBC). Understanding these interactions is crucial for compliance and tax efficiency. Legacy pensions provide fixed payments and do not allow lump sum withdrawals. They may affect your TBC, reducing available credits for other retirement products. Monitoring payments and considering strategic planning can help optimise your retirement savings. Seek expert advice to navigate these complexities and ensure your financial future is secure.
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"Legacy pensions, such as defined benefit pensions and market-linked income streams, come with unique rules when it comes to the Transfer Balance Cap (TBC). Understanding how these pensions interact with the TBC is essential to ensure compliance and optimize tax efficiency."

Act On Wealth TeamLegacy pensions, such as defined benefit pensions and market-linked income streams, come with unique rules when it comes to the Transfer Balance Cap (TBC). Understanding how these pensions interact with the TBC is essential to ensure compliance and optimize tax efficiency.

Act On Wealth Team

Team ActOn Wealth


Mastering Legacy Pensions and Transfer Balance Cap Compliance

Understanding Legacy Pensions and the Transfer Balance Cap

Navigating the world of superannuation can be complex, especially when it comes to legacy pensions and the transfer balance cap (TBC). If youre unsure how these factors affect your retirement savings, youre not alone. Let’s break it down in simple terms.

What Are Legacy Pensions?

Legacy pensions refer to older income stream products that were set up before modern superannuation rules were introduced. These include:

  • Defined Benefit Pensions: These pensions offer fixed payments based on a formula related to your salary and length of employment. The best part? You receive a consistent income regardless of how the market performs.

  • Market Linked Income Streams: Also known as term allocated pensions, these payments fluctuate based on the remaining term and the balance of your account.

  • Complying Lifetime or Life Expectancy Pensions: These pensions guarantee an income for life or for a specified term.

How Legacy Pensions Interact with the Transfer Balance Cap

When you start or continue a legacy pension in the retirement phase, a credit is added to your Transfer Balance Account (TBA). For defined benefit pensions, the credit is calculated as 16 times the annual payment amount.

Important Points to Consider

  • Exceeding the Cap: If your credit exceeds the TBC, which is currently set at $1.9 million (2024/25), you cannot withdraw the excess. However, be aware that additional tax may apply to the income stream.

  • Tax Treatment: Payments from defined benefit pensions that exceed the defined benefit income cap ($118,750 annually for 2024/25) are taxed at your marginal rate, minus a 10% offset. This means you could face higher taxes if you're not careful.

  • No Lump Sum Withdrawals: Unlike account-based pensions, legacy pensions typically do not allow you to withdraw lump sums.

  • Impact on Other Income Streams: The credits from legacy pensions can reduce your available TBC for other retirement phase income streams, which could limit your options.

Managing Legacy Pensions Effectively

To make the most of your legacy pensions under the TBC, consider the following strategies:

  1. Monitor Payments: Keep a close eye on your payments to avoid unexpected tax liabilities. Ensure they align with the defined benefit income cap.

  2. Consider Restructuring: Evaluate whether converting a market linked income stream to a modern account-based pension could be beneficial for your situation.

  3. Spousal Splitting: If your legacy pension significantly impacts your TBC, consider splitting super contributions with your spouse. This can help balance your retirement savings.

  4. Seek Expert Advice: Navigating legacy pensions can be tricky. Consulting with a financial advisor can help ensure compliance and optimise your outcomes.

Tax Implications of Legacy Pensions

  • Tax-Free Earnings: Earnings within the pension account are tax-free during the retirement phase.

  • Tax on Excess Payments: Payments that exceed the defined benefit income cap will incur tax, reducing your net income.

  • Estate Planning: Be aware that legacy pensions often have limited or no residual benefits for beneficiaries, which can impact your estate planning.

Common Mistakes to Avoid

  • Neglecting to Monitor Your TBA: Its crucial to ensure that credits for legacy pensions are accurately reflected in your TBA.

  • Overlooking Tax Consequences: Understand how exceeding the defined benefit income cap can affect your tax liability.

  • Failing to Seek Advice: Mismanaging your legacy pensions can lead to excess taxes or missed opportunities for optimisation.

How ActOn Wealth Can Help

At ActOn Wealth, we specialise in legacy pension reviews, ensuring that your legacy pension aligns with your retirement goals. Here’s how we can assist you:

  • TBA Management: We help you ensure compliance with TBC rules while maximising tax efficiency.

  • Strategic Planning: We provide advice on spousal strategies, conversions, and reversionary pensions.

  • Tax Optimisation: Our experts work to minimise taxes on legacy pension payments and excess balances.

If you're looking for clear guidance on legacy pensions and how to make your retirement savings work efficiently for you, contact ActOn Wealth today.

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Questions
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In certain circumstances, such as through a transition to retirement strategy, you might access your super while still working. Connect with our team for a detailed understanding.

What are some common retirement planning strategies?

In Australia, common retirement planning strategies include maximising superannuation contributions, considering self-managed superannuation funds (SMSFs), understanding government benefits, diversifying investments, exploring transition to retirement (TTR) strategies, downsizing, seeking financial advice, implementing estate planning, conducting regular reviews, and prioritising health and wellbeing. These strategies aim to secure a comfortable retirement by optimising savings, managing risks, and making informed financial decisions. Consulting with a qualified local financial advisor is crucial for personalised retirement planning.

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We understand this area inside out - cumbersome, hard-to-understand policies and protocols won’t hold us up. Our in-depth knowledge and expertise of the aged care system enable us to break things down succinctly, whilst our impartiality means we only find the best results for you - not for anyone else. Our aged care financial advice takes a holistic approach and considers all other areas of wealth growth and protection to ensure you feel secure and comfortable making this critical transition. Our aged care financial advice takes a holistic approach and considers all other areas of wealth growth and protection to ensure you feel as secure and comfortable as possible in making this critical transition.

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Matt from Act on Wealth immediately showed that he understood my needs and provided a clear way forward. There was always a really transparent and sympathetic approach to what can sometimes be murky areas. He set out the benefits and disadvantages of options and was ready to listen to concerns and preferences. I feel very satisfied that my time and money has been effectively spent and that I'm now on a sound road to retirement.
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