The December 2024 Consumer Price Index (CPI) data has confirmed that the superannuation general transfer balance cap will rise by $100,000, reaching $2.0 million for the 2025–2026 income year. This increase marks the latest adjustment to the cap, which was first introduced in 2017. The transfer balance cap is a lifetime limit on the amount of superannuation that can be transferred into one or more retirement phase income streams, where earnings on superannuation are currently tax-free. Additionally, income or withdrawals after the age of 60 are generally tax-free. The cap was introduced to promote fairness in the distribution of superannuation tax concessions and to ensure the long-term sustainability of the superannuation system.
Unlike other superannuation caps, such as contribution caps, the general transfer balance cap is adjusted annually based on the CPI, in $100,000 increments, rather than being indexed to Average Weekly Ordinary Time Earnings (AWOTE). The cap has increased progressively: from $1.6 million from 2017 to 2021, to $1.7 million from 2021 to 2023, to $1.9 million from 2023 to 2024, and will rise to $2.0 million for the 2025–2026 year.
Personal Transfer Balance Cap
The personal transfer balance cap is specific to each individual when they first start a retirement phase income stream. Your personal cap will match the general transfer balance cap at the time. Therefore, if you start your retirement phase income stream on or after 1 July 2025, your personal transfer balance cap will be set at $2.0 million.
If you began your income stream before 1 July 2025, your personal transfer balance cap would range from $1.6 million to $1.9 million, depending on the specific year. If you didn’t use the full amount of your personal transfer balance cap at the time, a proportional increase may apply to your personal transfer balance cap on 1 July 2025.
If you exceed your personal transfer balance cap, you must remove the excess from your income stream and either take it in cash or transfer it back into your superannuation account. An excess transfer balance tax would then be payable. The ATO will notify you if you’ve exceeded your cap.
Managing Transition to Retirement Income Streams (TRIS)
A Transition to Retirement Income Stream (TRIS) is a pension you can start before retirement once you reach age 60. Earnings on the TRIS are taxed as if it is still in accumulation phase, but pension payments are tax-free. Once you retire and notify your fund (or reach age 65), your TRIS becomes a retirement-phase pension, and earnings become tax-free.
If you’re turning 65 before 1 July 2025, and wish to maximize indexation, it is important to act now. You’ll need to commute your TRIS back to accumulation phase before your 65th birthday, otherwise, it will be assessed under the current $1.9 million cap.
Other Changes Related to Indexation
The indexation of the transfer balance cap will have a flow-on effect on other superannuation measures linked to this cap, including the total superannuation balance test. Starting from 1 July 2025, the total superannuation balance test will increase to $2 million. This balance determines eligibility for making after-tax non-concessional contributions and using the bring-forward rule.
If your total superannuation balance is below $2 million as of 30 June 2025, you’ll be able to make non-concessional contributions starting 1 July 2025, as long as you are under age 75. Additionally, the bring-forward rule will apply against the higher cap.
For those under 75 at 1 July 2025, and if you haven’t triggered the bring-forward rule in the previous financial years, you may contribute up to $360,000 if your balance is less than $1.76 million as of 30 June 2025, or up to $240,000 if it is between $1.76 million and $1.88 million.
Changes to Government Co-Contribution and Spouse Contributions Tax Offset
Eligibility for a government co-contribution and entitlement to the spouse contributions tax offset will also be affected by the total superannuation balance test, which will be $2 million from 1 July 2025.
Defined Benefit Income Cap
From 1 July 2025, the defined benefit income cap will increase to $125,000. For those receiving a defined benefit pension from a taxed scheme, 50% of pension payments above this amount will be included in assessable income and taxed at your marginal rate. If the pension is from an untaxed scheme (e.g., the Commonwealth Superannuation Scheme), the maximum tax offset from age 60 will be $12,500.
Contribution Caps
It’s important to note that the increase in the transfer balance cap does not affect the contribution caps. The pre-tax concessional contributions cap is indexed based on AWOTE in increments of $2,500. This change has not yet occurred. The non-concessional contributions cap, which is four times the concessional contributions cap, will only increase when the concessional cap is adjusted.
Conclusion
The increase in the superannuation general transfer balance cap to $2.0 million for the 2025–2026 income year presents significant opportunities for individuals looking to maximize their retirement savings. As the transfer balance cap affects various aspects of superannuation, such as total superannuation balance tests and eligibility for non-concessional contributions, it is essential to review your superannuation strategy in light of these changes. Working with a financial advisor can help you optimize your superannuation contributions, plan for retirement, and ensure that you stay compliant with the latest regulations.
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