Pension RBL

Whenever an RBL amount is received the ATO will determine whether the amount is assessed against the lump sum or pension RBL.

The pension RBL is applied if at least the lesser of:

50% of the total qualifying portions of all benefits received or
50% of the person's pension RBL amount

is taken as a ''complying'' pension or annuity.

A complying pension or annuity must meet a number of standards including:

payable for life or life expectancy;
no residual capital value;
limited commutation

If this does not occur, benefits are assessed against the lump sum RBL.

Example:

Monica cashes out an employer ETP of $450,000 (50% pre 1983 and 50% post 1983 components) and purchases a complying pension, valued at $400,000 for RBL purposes.

RBL amounts total

employer ETP = $191,250
complying pension = $400,000;

Total RBL amount = $591,250

Qualifying portions total

employer ETP = $416,250
complying pension = $400,000

Total qualifying portions = $816,250

The lesser of

50% of the total qualifying portions of all benefits received ($408,125)
50% of the person's pension RBL amount ($529,371)

is $408,125.

In this case Monica does not qualify for the pension RBL as the complying pension is less than 50% of her total benefit.

Monica has an excess benefit as the amount counting for RBL ($591,250) exceeds the lump sum RBL.

There are a number of potential traps when targeting the pension RBL.

Qualifying portions are used to determine whether the pension RBL test has been met. Qualifying portions and RBL amounts are generally the same except when it comes to employer ETP. In this case, the pre July 1983 component counts as a qualifying portion even though it does not count as an RBL amount.
Excessive amounts do not count as qualifying portions. Once a benefit is determined to be excessive it does not effect the test for qualifying for the pension RBL.
The calculation of the qualifying portion of a lifetime complying pension can result in a smaller amount than the purchase price. This can cause the "50% test" to fail and the benefit to be assessed against the lump sum RBL.
Ref: ITAA 1936 Section 140ZF