2016 budget changes to superannuation include a cap on account based pension balances of $1.6 million from 1 July 2017. This means that earnings on the amount over $1.6 million will be taxed at 15%.
Does this then mean it's not worthwhile having more than $1.6 million in your SMSF?
If you are a single retiree with $1.6 million in an account based pension earning 5%, the fund will earn $80,000 tax free. To put this into perspective this is slightly higher than the Australian average full time adult ordinary time pre-tax earnings, tax free.
If the fund has $2.5 million in assets and generates $125,000 in income, the tax will only be $6,750 which is an average tax rate of 5.4%.
Keep in mind, the $1.6 million limit is per person. Therefore, a couple can have $3.2 million generating tax free income. If the earnings rate is 5% this equates to $160,000 per annum, or in excess of $3,000 per week tax free.