By Colin Lewis, Head of Strategic Advice, Fitzpatricks Advice Partners
January 2025
Super’s ‘transfer balance cap’ will increase from July 1, 2026
The general transfer balance cap will increase from $2 million to $2.1 million from 1 July 2026, following the release of the quarterly Consumer Price Index (CPI) data on 28 January.
The transfer balance cap is the limit on how much can be moved into superannuation’s tax-free retirement phase.
There was a high probability this cap would be indexed to $2.1 million and the CPI figures proved enough for this to happen.
The Australian Taxation Office needs to formally confirm this increase.
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 in the transfer balance cap means you may be able to get more into super’s 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 2026–27 financial year, you will start with a transfer balance cap of $2.1 million.
If you’re running a pension now or commence one before 1 July then you’ll be entitled to a proportional increase in your personal transfer balance cap based on any unused amount of your cap. But where you’ve already fully utilised your cap, you won’t get any increase.
Should I commence a pension now?
Once you meet a ‘condition of release’ and are eligible to 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 the higher cap of $2.1 million, you need to delay starting a 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!
But if you won’t ever come close to using your entire personal transfer balance cap then there’s no point in delaying for this increase. For this purpose, you need to consider adding your spouse’s super balance to your super balance as one day you may inherit their super as death benefit pension which counts against your cap.
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 $2 million cap.
What else is changing?
Apart from limiting the amount that can be moved into retirement phase, the transfer balance cap is tied to a number of superannuation measures. So, indexation of this cap has a flow-on effect to these other measures.
The ‘total superannuation balance’ test for several measures will increase to $2.1 million from 1 July 2026.
Your total super balance – the total amount you have in the superannuation system – determines your eligibility to make non-concessional (after-tax) contributions and use the bring-forward rule.
So, if your total super balance is less than $2.1 million – up from $2 million – on 30 June 2026, you may 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 this higher cap.
Eligibility for a government co-contribution and entitlement to the spouse contributions tax offset are both dependent upon a total superannuation balance test which will be $2.1 million from 1 July.
On 1 July 2026, the defined benefit income cap will increase to $131,250.
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 $13,125.
What about the contribution caps?
Indexation of the transfer balance cap has not changed the contribution caps.
The concessional (pre-tax) contributions cap is indexed in line with Average Weekly Ordinary Times Earnings (AWOTE) – not inflation – 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.
From 1 July 2026, the concessional contributions cap is highly likely to increase from $30,000 to $32,500, but we’ll only know this after the release of the AWOTE figures for the November 2025 half on February 26.
And if the concessional contributions cap increases to $32,500, the non-concessional contributions cap will increase to $130,000 (and up to $390,000 over a three-year period under the bring-forward rule) from 1 July.
So, with indexation of the contribution caps, it’s a matter of watch this space.
