As the name suggests, the Transfer Balance Cap (TBC) limits how much retirees can have in superannuation in pension phase. This is important, as the amount a retiree commences a superannuation pension with, results in its earnings being tax free.  

The TBC was first introduced on 1 July 2017, initially set at $1.6 million. The cap increases in line with inflation in $100,000 increments. The first indexation occurred on 1 July 2021, with the TBC increasing to $1.7 million.  

Due to higher inflation, the cap is expected to increase to $1.9 million on 1 July 2023. This is welcome news for many, meaning more funds can be held in the tax free superannuation environment.  

This change to the TBC as a result of indexation is not to be confused with recent changes announced by the Albanese Government to tax larger superannuation balances of over $3 million.  To read more about those changes see Alison Dellows blog HERE.  

The increase in the cap to $1.9 million means that someone who is eligible to but has not yet commenced a retirement phase income stream prior to 1 July 2023 will enjoy the full benefit of a $200,000 increase to the TBC and enjoy more tax-free earnings.  

However, those that have already used up all of their transfer balance cap, do not get any benefit from the increase.  

 Those that have partially used their TBC, can enjoy some benefit of the increase. For example, if you have previously only used up 75% of your TBC, then 25% of the $200,000 increase ($50,000) would be available after 1 July 2023.  

From a strategic perspective, those considering the commencement of their first retirement phase income stream may be better off deferring until 1 July 2023 to lock in the maximum increase to their personal TBC.

These clients should be on the lookout for any legislative change that may affect the effectiveness of these deferral strategies. 

For those in a position where they may be able to add more to superannuation to benefit from the higher TBC, the following table highlights what Non-Concessional Contributions (NCCs) can be made depending on a superannuants Total Superannuation Balance (TSB) currently and after 1 July 2023.  

For example, in the current financial year, someone considering making three years’ worth of non-concessional contributions at once (3 x $110,000 or $330,000) must have had a total superannuation balance at 30 June 2023 of less than $1.48m. 

 The legislation is complex, and care should be taken when considering such strategies in consultation with your Wealth Adviser.  

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