Superannuation Transfer Balance Cap Increase

The Transfer Balance Cap (TBC) is a limit imposed a few years ago on superannuation pension balances.

Initially, it was set at $1.6 million, which became the maximum amount a person could invest upon commencement of their pension. Amounts above that could be retained in the lump sum superannuation system.

There were instances of Australians with over $10 million in pensions, meaning very wealthy Australians were paying no tax on significant investment incomes. The limit imposed by the TBC meant all income on amounts above $1.6 million would pay the 15% superannuation earnings tax.

Recently it was announced that from 1 July 2021, the TBC will be lifted to $1.7 million and this has prompted a few enquiries from clients as to whether it has any application to their circumstances. While we will be discussing with clients individually at review time, there are a few key issues to note:

  1. The new $1.7 million only applies to new pensions. If you commenced a $1.6 million pension prior to 1 July 2021, you are considered to have used up the entire limit i.e. you cannot start a separate pension with a further $100,000.
  2. If you had commenced a pension for less than $1.6 million prior to 1 July 2021, you will be entitled to a proportionate amount of indexation e.g. If you had commenced an $800,000 pension previously, you would be entitled to a further $850,000 after 1 July 2021.

Overall, the change is unlikely to be relevant for most of our clients.