Welcome to the latest edition of Ask Lime where we answer your SMSF technical questions.
Now today’s question is as follows: “As a result of the share market falling, my Pension balance has dropped below $1.6 million. Can I top it up?”
Now this is a very topical question. Lots of people find themselves in this situation. And unfortunately, the answer is ‘No, you are not able to top your balance up’. And I am assuming here that the person who asked this question started with a balance of $1.6 million either on the 30th of June 2017 when the Transfer Balance Cap came into place or possibly since then when they started their Account Based Pension. You see the way that the Transfer Balance Cap works is it is measured at the time you start the Pension, not on ongoing basis. So the good news is that if you have strong Investment Earnings and if your earnings exceed your Pension Drawdowns, you are allowed to have your balance grow above $1.6 million. There is nothing to stop it going upto $1.7, $1.8, $2 million or even more. The flip side of that is that if you had weak investment earnings as many people have had in the last 6 months, then your balance can fall below $1.6 million and unfortunately, there is very little that you are able to do in order to top it up.
What's more, it means you will still have an Accumulation balance in your fund, and therefore will require an Actuarial Certificate in future years.
So that is the answer to today’s question. If you have any technical questions about SMSFs, then why don’t you let me know and you never know, you might find that your question is answered in the next edition of Ask Lime.
Greg Einfeld has over 20 years’ experience in the Australian Superannuation and Financial Services industry. He has MEc and MBA degrees, is a licensed financial adviser, a qualified actuary, and specialises in Self Managed Super Funds (SMSF’s). He regularly presents on a variety of SMSF topics including investment, tax, estate planning, pensions, administration and strategies.