What will an increase in the superannuation transfer balance cap mean for you?
Last reviewed February 2023
The general transfer balance cap sets the limit for Superannuation benefits that can be used to commence a tax-free retirement income stream.
The release of the recent December Consumer Price Index figures (inflation) appears to lock in a general TBC increase for $1.7 million to $1.9m from 1 July 2023 – unless legislation is specifically changed to stop that from happening. (And we should always consider that qualification given that we have a Federal Budget in May and the Labor Party is making a lot of noise about tax concessions to superannuation at the moment.)
I am yet to start a pension
Currently, the general transfer balance cap is $1.7 million. Therefore, if you are planning to retire between now and 30 June and you have less than $1.7 million in superannuation, you will be able to convert your entire balance into a tax-free retirement income stream, so long as you meet certain criteria.
If you have between $1.7 million and $1.9 million in superannuation and are planning to retire, you may like to consider delaying the commencement of your pension until after the 1 st of July 2023.
I have already started my pension
Each person has an individual transfer balance cap. If you have already started a pension, your transfer balance cap is based on the amount and date/s of your pension commencement/s.
Any increase to your personal transfer balance cap is based on any unused portion you may have. If you have already used your maximum transfer balance cap, you will not benefit from the indexation increases to the general cap. Remember that any payments you have received from these benefits do not necessarily decrease your personal transfer balance cap.
Example
Angus commenced a pension on 1 July 2022, after the transfer balance cap increased from $1.6 million to $1.7 million. The opening balance of the pension amount was $1.5 million.
On 1 January 2024, Angus makes a downsizer contribution of $300,000. On the understanding that the transfer balance cap has gone up to $1.9 million, he intends to start a new tax-free pension for the $300,000.
However, as Angus commenced his pension when the transfer balance cap was $1.7 million, he has utilised 88.24% of his transfer balance cap (being $1.5 million ÷ $1.7 million).
Therefore, the increase of Angus's individual transfer balance cap is $23,250, being 11.76% (the unused portion) of $200,000.
Angus would be able to commence a new tax-free pension of $223,520 to utilise the entirety of his transfer balance cap.
Let us know your plans
If you are planning to retire soon, you may want to take advantage of the upcoming increase in the transfer balance cap.
Alternatively, if you have new rollovers or contributions coming into your superannuation, you should talk to us about how the transfer balance cap will affect your retirement balances.
Please give us a call so we can discuss your plans.
