The more I read the Law Companion Guidelines etc about the Transfer Balance Cap, the greater the feeling that the drafts people don’t have much SMSF experience. So the comments below are in the context of “don’t panic – let’s try and be logical”, rather than being able to point to a section that sets out ATO policy.
A “capped defined benefit income stream” includes life expectancy and market-linked pensions if they existed prior to 1 July 2017. After that, they are excluded and presumably are subjected to TBC. The material says that after 1 July 2017 a new market-linked pension would have a value of the purchase price. Before that, it is valued as drawing times remaining years rounded up. What seems to be missing here is that these “non-commutable” capped defined income streams can (in the SMSF context) be commuted/converted into a new market-linked pension.
From a practical and prudent point of view I think we had better assume – until shown otherwise – that it may not be possible to convert a lifetime 1.06(2) pension to a market-linked 1.06(8) pension if the conversion amount is going to cause the Transfer Balance Cap to be exceeded. We already work with one constraint on the conversion in that the term has to be chosen to meet the equivalent minimum drawdown required for ABPs.
There should have been three sets of “special values” – one each for lifetime, life expectancy and market-linked on account value. The lifetime value should not have been a flat 16 times – nor should the life expectancy have been remaining term. A more realistic PVF timetable was desirable. When we get more confident as to how the “debit” aspect of the TBC account will work, there may need to be a second round of optimisation.