Tim Howard

The effects of inflation and cost of living pressures have dominated BT’s most-asked adviser queries – and the financial services firm has noted indexation from rising inflation could impact the best time to commence a new income stream.

In the latest review of questions asked of BT’s regulatory team, it noted the impact inflation will have on indexation, particularly for the super transfer balance cap which could increase to $1.9 million from 1 July 2023 unless legislated to change.

The cap, which is currently $1.7 million, is the amount of super that can be transferred to tax-free retirement income streams.

Regular indexation of certain legislated thresholds is designed to ensure the amounts stay in line with inflation, but according to BT “rapid increases” in the level of CPI during 2022 could mean there is a double indexation of the cap this year, leading to the $200,000 increase.

BT technical consultant Tim Howard noted if there are clients planning to start a retirement stream before the end of the financial year, it might be worth re-considering if this the best outcome.

“Would they be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit?”

Howard tells Professional Planner advisers generally accept the key driver behind the recent successive interest rate changes is to curb inflation.

“This naturally has a knock-on effect on the spending and savings capacity of clients with outstanding debts, while being of benefit to some self-funded clients who are able to get a higher return on their cash,” he says.

Howard adds the total superannuation balance threshold is equal to the general transfer balance cap which he expects to increase at the same rate.

“Advisers are understandably expecting the same inflationary pressures to drive up the superannuation contribution thresholds from 1 July 2023,” he says.

“However, we haven’t seen the same increase in average weekly ordinary time earnings (AWOTE), the figure used to index the concessional contribution cap.

“With the non-concessional contribution cap set at four times the concessional contribution cap, it would not move either, unless there is a change to the concessional cap.”

Still waiting

While BT’s service has been a repository of wisdom for advisers, there are some matters the firm has been unable to answer.