Too Much Super?

Don't forget the Reasonable Benefit Limits in superannuation, they should tell you when you've invested too much, writes Barbara Smith.

By Barbara Smith ·
12 Aug 2005

For most people, having too much money is not an issue. But there is a point at which investing in superannuation suddenly becomes less effective - that point it called the RBL or Reasonable Benefit Limit.

Most people don't understand how reasonable benefit limit (RBL) rules work, or even what they are. RBL's were introduced to stop people cheating the superannuation system by using it excessively as a tax haven.

The RBL rules are administered by the Australian Taxation Office (ATO) and they apply to both lump sums and pensions. In attempting to estimate at what level you might be putting too much into super it is the pension RBL that matters most.

As soon as you cross the RBL you will be paying more tax.

Your pension RBL is the maximum amount of concessionally taxed benefits you can receive during your lifetime, and includes:

RBL-counted super benefits, including all of the pre-July 1983 component and
the post-June 1983 tax element (and 85 per cent of the untaxed element)
Some retained eligible termination payments (ETPs) paid on termination of an
employment
An ETP arising from the small business capital gains tax (CGT) concessions
that is taken as a CGT exempt component.

Your RBLs are fixed at flat dollar amounts that started on 1 July 1994 at $400,000 for the "lump sum" RBL and $800,000 for the "pension" RBL. They are indexed on 1 July each year by the increase in average weekly ordinary time earnings.

For 2005-06 they are $648,946 and $1,297,886 respectively. Benefits that exceed these limits are referred to as an excessive component not concessionally taxed, and can incur tax at up to 48.5 per cent including the Medicare levy.

If you are going to exceed the pension RBL, you could consider taking a lifetime pension because of the way the RBL amount is calculated. However, these rules are complex and they can be difficult and administratively expensive in a self-managed super fund, with the government only allowing them in self-managed funds that were established before 12 May 2004, where the pension is commenced during a transitional period, which has been extended to 31 December 2005.