A reasonable benefits limit (RBL) is the maximum amount of money the government will allow you to take in superannuation before they think you've taken adequate advantage of the tax concessions. Any amount you withdraw as a lump sum from super in excess of that amount is taxed at the highest marginal tax rate. (and any excessive benefit you take as a pension does not attract the 15% pensioner's tax rebate).

There are two different RBLs. The RBL if you take your money as a lump sum is $562,195 in the 2002/03 tax year ($529,323 in 2001/02). If you take your money as a pension then an RBL of $1,124,384 applies in 2002/03 ($1,058,742 in 2001/02). The higher RBL for taking your money as a pension applies because it stops you taking all your money, blowing it on really nice holiday and then going onto social security at the full rate. (There are certain ways of still getting social security, they involve structuring your assets in ways that have the lowest profile to the Centrelink asset and income tests. I'll write about them in another update to this site).

In case you are wondering where these numbers came from, they were originally $400,000 and $800,000 in 1994/95, then they were indexed upward with inflation.

For people over 55, the pension RBL will apply if at least 50% of the super benefits, or 50% of the pension RBL (whichever is lower) are taken as a complying pension or annuity.

Higher RBLs, called transitional RBLs may be available to some people under transitional arrangements.

Any money that is excessive to your RBL is called an excessive component. Excessive components taken as a lump sum are charged at a rate of 47% tax plus Medicare levy. Excessive components taken as an allocated pension are not eligible to receive the 15% pensions tax rebate. The latter is obviously not a great thing but is not as big a problem as paying 48.5% on an excessive lump sum.

If you have a sum of money in super less than the lump sum RBL you will be free to choose to take money as a lump sum or an allocated pension or complying pension or annuity and you won't have to worry about taking an excess benefit in either case.

If you are slightly above the lump sum RBL but not by enough to justify going with a pension RBL complying income stream, a common strategy is to start two allocated pensions. One allocated pension is bought with all the money up to your lump sum RBL, the other bought with the excess component. The only tax paid by a super pensioner is tax on the income actually drawn, minus deductibles and rebates, you don't pay any tax within the super fund. Therefore the usual strategy is to draw the absolute minimum from the excessive pension, and draw whatever money you need from the non-excessive pension. What this achieves is that most of your income will come with the 15% tax rebate. This is more tax efficient than drawing out a larger amount from the excessive pension and having to pay your full marginal tax rate on it with no rebate.

If you take a pension RBL complying pension there are compromises to make such as the non-commutability of this money, conservative portfolios and low returns and possible forfeiture of some or all of your money if you die before your life expectancy. On the other hand complying pensions are invisible to Centrelink's Assets Test, and can thus be used to increase your Centrelink entitlements if you are presently restricted by the assets test.

If you are keen and willing to go to a fair bit of bother you can set up a complying pension within a self managed super fund, you'll need an actuary to sign off on the strategy and payments schedule but importantly most of the issues that put people off these types of pension are fixed.

There is also an alternative to RBL complying lifetime pensions, which can be useful in some cases. With a self managed super fund it is possible to start a non-complying lifetime pension (non complying means you can commute it to a lump sum if you really need to). You don't qualify for the pension RBL with these, but in some cases you don't need to. The actual RBL value of a lifetime pension is a function of the first year's income, your life expectancy and the amount of undeducted contributions in the pension. Unlike an allocated pension where the full account balance is what counts toward your RBL, these types of pensions often have a lower RBL amount, in fact you can reduce the RBL value of a lifetime pension significantly by adding more undeducted contributions. Given enough UDCs, the RBL value of the lifetime pension will be so low you may not even need the pension RBL, you can reduce the RBL value of the pension sufficiently that it may in fact all get in under the lump sum RBL, which means a fully rebatable income stream, without restrictions on commutation.

If you are facing a situation where you are well above the lump sum RBL and the lack of a tax rebate is making the strategy of using two allocated pensions uneconomical, using a pension RBL complying pension or annuity starts to look like a good choice.

I am being deliberately vague about the numbers in this article ("not by much" and "well above") because the actual numbers require detailed calculation for each individual. The adviser will need to take into account the components of your super, your risk profile, your life expectancy, issues specific to the products being considered, Centrelink entitlements and other things. This data needs to be factored in when deciding whether or not to use a complying pension.

As a really crude rule of thumb that I will later deny ever mentioning the two allocated pensions strategy usually makes sense if the excessive component is a hundred thousand or so, maybe a couple of hundred thousand. More than that and a non-complying lifetime pension starts to look like a good idea, higher still and the a complying lifetime pension is the best option though I must stress that the grey area is huge and the figures can be rubbery.