Key takeaways
- The transfer balance cap limits how much you can move into a tax-free retirement-phase pension.
- It is a lifetime cap, indexed over time, and each person has their own personal cap.
- Amounts above the cap must be removed, and an excess can attract tax.
- Pension events are reported to the ATO through transfer balance account reporting (TBAR).
The transfer balance cap is one of the most important numbers in retirement super. It sets a limit on how much of your super you can move into the retirement phase, where earnings are tax-free. It does not cap how much you can hold in super overall, only how much can enjoy the tax-free pension treatment.
How the cap works
When you start a retirement-phase pension, the amount you transfer in counts against your transfer balance cap. The cap is a lifetime limit, not an annual one, and it is indexed over time. Because of indexation, people who started pensions in different years can have different personal caps, so your cap is specific to you.
The general cap figure changes with indexation, so rather than quote a number that will date, we point to the ATO's transfer balance cap guidance for the current amount.
What counts towards it
Starting a pension adds to your transfer balance account. Some events reduce it, such as commuting a pension back to accumulation. The balance can also be affected by structured settlements and certain death benefit pensions. Your administrator tracks this for the fund.
If you exceed the cap
If you move too much into retirement phase, the ATO issues an excess transfer balance determination. You must remove the excess from the retirement phase, either commuting it back to accumulation or out of super, and an excess can attract additional tax on the notional earnings. It is far better to plan within the cap than to unwind an excess.
Reporting
Pension events are reported to the ATO through transfer balance account reporting (TBAR), generally on a quarterly basis. This keeps your transfer balance account up to date so the cap can be applied correctly. Staying on top of TBAR is part of the fund's annual compliance cycle.
Frequently asked questions
- Does the transfer balance cap limit how much I can have in super?
- No. It only limits how much you can move into the tax-free retirement phase. You can hold more than the cap in super overall; the excess simply stays in accumulation phase, where earnings are taxed.
- Is the transfer balance cap the same for everyone?
- No. It is indexed over time, so people who started pensions in different years can have different personal caps. Your cap depends on the general cap when you first had a retirement-phase pension and any later indexation you were entitled to.
- What happens if I exceed the transfer balance cap?
- The ATO issues a determination, you must remove the excess from retirement phase, and an excess can attract tax on notional earnings. Planning within your cap from the start avoids this.
