The general transfer balance cap will increase from $1.9 million to $2 million from 1 July 2025 – barring any government intervention – following the release of the quarterly Consumer Price Index (CPI) data on 29 January.
The transfer balance cap is the limit on the amount that can be moved into superannuation’s tax-free retirement phase.
It was expected that indexation to $2 million was highly likely, but the CPI figures confirmed this.
The only thing that might prevent this from happening is an election and an announcement by the government, including potential freezing of the threshold in the upcoming Federal Budget on 25 March.
What does this mean?
The transfer balance cap limits the amount you can use to start a retirement phase income stream, e.g. account-based pension, or receive by way of a death benefit pension, e.g. on the passing of your spouse.
It doesn’t apply to transition-to-retirement pensions unless they move into retirement phase.
So, the increase means you may be able to get more into the tax-free environment from 1 July.
If you commence a superannuation pension, or receive a death benefit pension, for the very first time in the 2025–26 financial year, you will start with a transfer balance cap of $2 million.
If you had a pension before then you may be entitled to a proportional increase in your personal transfer balance cap based on the unused amount of your cap, but if you’ve already fully utilised it then you won’t get any increase.
Should I commence a pension now?
Once you meet a ‘condition of release’ and can access your super, it’s attractive to start a pension because fund earnings including capital gains on the assets supporting that pension are tax-free.
To benefit from indexation, you need to delay starting the pension until 1 July, but you’ll pay a little more tax now – 15 per cent in accumulation phase – to save tax in the long term by having more in retirement phase from 1 July.
It’s a numbers game!
It doesn’t matter if won’t come close to your personal transfer balance cap after combining the value of your super and your spouse’s super – one day you may receive their super as death benefit pension which counts against your cap. In this case, don’t delay for indexation.
Transition to retirement income streams (TRISs)
A TRIS is a pension you can commence before retirement once you’ve reached age 60 – ideal for people needing extra income to live on.
Earnings are taxed as if still in accumulation phase but pension payments are tax-free.
Once you retire and advise your fund, or reach age 65, the pension becomes a retirement phase TRIS and earnings become tax-free.
At this point the TRIS is assessed against your transfer balance cap.
Consequently, if you’re turning 65 before 1 July and you wish to maximise indexation it will be necessary to act now and commute your TRIS back to accumulation phase before you turn 65, otherwise it will automatically be assessed under the current $1.9 million cap.
What else is changing?
Indexation of the TBC has a flow-on effect to certain superannuation measures tied to this cap.
The total superannuation balance test for several measures will increase to $2 million from 1 July 2025.
Your total superannuation balance determines your eligibility to make after-tax non-concessional contributions and use the bring-forward rule.
So, if your total superannuation balance is less than $2 million – up from $1.9 million – on 30 June 2025, you’ll be able to make non-concessional contributions from 1 July, provided you’re under age 75.
The application of the non-concessional contributions bring-forward rule will be against a higher cap.
If you haven’t triggered the bring-forward rule in the 2023-24 or 2024-25 financial years and are under age 75 at 1 July 2025, you may contribute up to $360,000 provided your total superannuation balance is less than $1.76 million at 30 June 2025 and up to $240,000 if it is $1.76 million to less than $1.88 million.
Eligibility for a government co-contribution and entitlement to the spouse contributions tax offset are both dependent upon a total superannuation balance test which is $2 million from 1 July.
On 1 July 2025, the defined benefit income cap increases to $125,000.
So, if you’re receiving a defined benefit pension from a taxed scheme, 50 per cent of pension payments above this amount will be included in your assessable income and taxed at your marginal rate. And if it’s from an untaxed scheme, e.g. Commonwealth Superannuation Scheme, the maximum tax offset from age 60 will be $12,500.
What about the contribution caps?
Indexation of the transfer balance cap has not changed the contribution caps.
The pre-tax concessional contributions cap is indexed in line with Average Weekly Ordinary Times Earnings (AWOTE) in increments of $2,500. This has not yet happened.
The non-concessional contributions cap is four times the concessional contributions cap, so will increase only when the concessional contributions cap is indexed.
Only the transfer balance cap has been indexed at this stage and we await the release of AWOTE data for the November 2024 half on 20 February to know whether the contribution caps will also increase from 1 July.
