Transfer Balance Cap

The transfer balance cap is the ceiling on moving super from accumulation phase into a retirement pension, where earnings are tax-free. The general cap is $1.9 million from 1 July 2024, indexed in $100,000 increments, and it applies per person rather than per fund. Starting a pension creates a credit on your transfer balance account equal to the amount moved in; commutations create debits. Regular pension payments do not create cap space - only full or partial commutations do.

Personal caps sit between $1.6 million and $1.9 million depending on when you first started a pension, because indexation only grows the unused portion. A member who started a $1.6 million pension in 2017 has used their cap space and cannot index further without commuting. Above the cap, the excess must stay in accumulation, where earnings are still taxed at 15 percent. The cap is the ceiling the pension lives under, and the two are planned together or not at all.

The mechanism is a running account the ATO maintains against your TFN. Starting an account-based pension creates a credit for the full amount transferred; a partial or full commutation creates a debit that restores cap space. The account is checked every time super moves into pension phase, and the balance cannot exceed the personal cap. Indexation grows the cap in $100,000 increments, but only on the unused portion - a member who used the full $1.6 million in 2017 gains nothing from later indexation without commuting first.

The split is the planning mechanic. A member retiring at 60 with $2.4 million transfers $1.9 million into the pension, where earnings are tax-free, and leaves $500,000 in accumulation, where the 15 percent earnings tax continues. A couple with $3.8 million has two caps and can balance the split between them. The pension minimum drawdowns apply only to the money in pension phase, which is another reason the split is deliberate rather than accidental.

The over-transfer case runs through the ATO. A member who transfers $2.0 million against a $1.9 million cap has a $100,000 excess: the ATO issues a commutation authority directing the excess out of the pension, and excess transfer balance tax applies to the notional earnings on the excess. The commutation is not optional - it is a direction. The paperwork lands within weeks of the fund reporting the transfer.

For an Australian reader, the cap decides how much of a retirement balance earns tax-free and how much keeps paying 15 percent - a line worth six figures on a large balance. The $500,000 left in accumulation in the split above pays roughly $6,000 a year in earnings tax at an 8 percent return that the pension side does not. Couples planning a lump sum check both caps, because the cap is per person and the combined space is $3.8 million. The account-based pension entry covers the drawdowns; the age pension entry covers the means test that sits outside super entirely.

A colleague named Brent (yes, that Brent) transferred his entire balance into pension phase in one transaction, because the pension was the part that paid him. The ATO's commutation letter arrived with a direction to move the excess out and a tax assessment on the notional earnings. The transfer was correct in spirit and wrong in arithmetic. The highest-leverage thing most Australians can do is plan the split before starting the pension - the cap is checked at the transfer, not at the intention.