What will an increase in the superannuation transfer balance cap mean for you?

The Australian Taxation Office recently announced that the general transfer balance cap will increase by $200,000 to $1.9 million on 1 July 2023. A transfer balance cap limits the amount you can transfer into the tax-free retirement phase of superannuation.

I am yet to start a pension

Up to 30 June 2023, the general transfer balance cap is $1.7 million. Therefore, if you are planning to retire between now and 30 June and you have less than $1.7 million in superannuation, you will be able to convert your entire balance into a tax-free pension or retirement income stream.

If you have between $1.7 million and $1.9 million in superannuation and are planning to retire, you may like to think about delaying the commencement of your pension until after the cap goes up. Starting a pension between these amounts before 30 June 2023 will mean that only a portion of the increase will be available to you when the cap goes up.

I have already started my pension

Each person has an individual transfer balance cap. If you have already started a pension, your transfer balance cap is based on when you commenced your first pension.

Therefore, if your first pension started before 1 July 2022, your transfer balance cap is $1.6 million. If you commence your first pension between 1 July 2022 and 30 June 2023, it will be $1.7 million.

Any increase to your personal transfer balance cap is based on any unused portion you have. Remember that any pension payments you have received do not decrease your personal transfer balance cap.

Example

Angus commenced a pension on 1 July 2022, after the transfer balance cap increased from $1.6 million to $1.7 million. The opening balance of the pension amount was $1.5 million.

On 1 January 2024, Angus makes a downsizer contribution of $300,000. On the understanding that the transfer balance cap has gone up to $1.9 million, he intends to start a new tax-free pension for the $300,000.

However, as Angus commenced his pension when the transfer balance cap was $1.7 million, he has utilised 88.24% of his transfer balance cap (being $1.5 million ÷ $1.7 million).

Therefore, the increase of Angus's individual transfer balance cap is $23,250, being 11.76% (the unused portion) of $200,000.

Angus would be able to commence a new tax-free pension of $223,520 to utilise the entirety of his transfer balance cap.

Letting us know your plans

If you are planning to retire soon, you may want to take advantage of the upcoming increase in the transfer balance cap.

Alternatively, if you have new rollovers or contributions coming into your superannuation, you should talk to us about how the transfer balance cap will affect your retirement balances.

Please give us a call so we can discuss your plans.

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