Indexation of Transfer Balance Cap

Now that the season of indexation is upon us, the first significant figure to be indexed is the Transfer Balance Cap.  This Cap is the limit on the amount of superannuation which can be transferred from the accumulation phase (that is the taxable phase) to the retirement phase (that is the tax free phase).

From 1 July 2026, the Transfer Balance Cap will increase to $2,100,000 from the current value of $2,000,000.

For individuals who first transfer all or a portion of their superannuation into retirement phase (by, for example, commencing an account-based pension on or after 1 July 2026), they will have a transfer balance cap of $2,100,00.

For individuals who have previously transferred all or a portion of their superannuation retirement phase (as they commenced, for example, an account based pension on or before 30 June 2026) but have not entirely exhausted their transfer balance cap, they will be entitled to an increase in their transfer balance cap but not for the full $100,000.  In this case, if an individual has exhausted 75% of their transfer balance cap, they will be entitled to an increase in their cap equal to the unexhausted portion of their cap.  In this case, the unexhausted portion is 25%.  So, they will be entitled to an increase of $25,000 in their cap (being of 25% of $100,000). 

For individuals who have exhausted their transfer balance cap, they are not entitled to any increase in their cap.

Three points should be noted. 

First, anyone who is intending to commence their first retirement phase income stream (say, by commencing an account based pension) in the next few months, should (in conjunction with their financial adviser) consider whether it is better to delay the commence of the pension until on or after 1 July 2026 (so that the $2,100,000 transfer balance cap applies).  If they commence their pension on or before 30 June 2026, they will be entitled to the current transfer balance cap of $2,000,000.  For some, this may be worthwhile, for others, it may be irrelevant.

Second, you cannot game the system to be entitled to the higher transfer balance cap of $2,100,000 by commuting some or all of your existing retirement phase pensions before 1 July 2026, rolling back the account balance to accumulation phase and recommencing new retirement phase pensions on or after 1 July 2026.  In this situation, your unexhausted amount of the transfer balance cap is determined by the greatest value of your transfer balance cap.  So, if you had exhausted 95% of your transfer balance just at any time before 30 June 2026, you would only be entitled to 5% of the $100,000 increase in the cap.

Third, if you have only commenced transition to retirement pensions (and you have not yet reached age 65 or retired on or after age 60 or otherwise satisfied an unrestricted release condition on or before 30 July 2026), the increased transfer balance cap of $2,100,000 will apply to you.  This is because transition to retirement pensions (before you have satisfied an unrestricted release condition) are not retirement phase pensions, as the earnings on the assets supporting the pensions are taxable.