Superannuation Update: General Transfer Balance Cap Increases to $2 Million from 1 July 2025
The general transfer balance cap (TBC) will increase from $1.9 million to $2 million on 1 July 2025. This change follows the release of the latest Consumer Price Index (CPI) data in January. As a result, individuals can transfer up to $2 million from their superannuation accumulation accounts into tax-free retirement phase accounts. This offers a valuable opportunity to maximise tax-free earnings in retirement.
What is the General Transfer Balance Cap (TBC)?
The TBC determines the maximum amount a person can transfer into the retirement phase of superannuation, where investment earnings are tax-free. Any amounts over the cap remain in the accumulation phase, which is taxed at 15%. The TBC was introduced to limit tax concessions in retirement and ensure the superannuation system remains fair and sustainable for all Australians.
Why Is the Change Happening?
The TBC is indexed according to the Consumer Price Index (CPI) to preserve its real value over time. The last increase occurred on 1 July 2023, when the cap rose from $1.7 million to $1.9 million. The increase to $2 million aligns with broader economic conditions. It is designed to help retirees benefit from higher tax-free earnings on their superannuation savings.
This change offers a significant opportunity for those approaching retirement. It allows them to optimise their superannuation strategies and maximise the tax-free component of their retirement savings.
What Does the Transfer Balance Cap Increase Mean for Superannuation Holders?
For superannuation holders, the increase in the TBC presents several important considerations:
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Starting a Retirement Phase Pension
If you’re planning to start a retirement phase pension soon, consider whether to commence before or after 1 July 2025. Starting your pension before the change means your transfer will be subject to the current $1.9 million cap. If you wait until after 1 July 2025, you’ll be able to transfer up to $2 million, thereby increasing the portion of your super earnings that are tax-free.
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Existing Retirement Phase Pensioners
For individuals who already have a retirement phase pension and haven’t fully used their TBC, there may be an opportunity to transfer additional funds into the retirement phase after 1 July 2025. The amount you can add depends on your highest ever transfer balance and how much of the cap you’ve already used. Be sure to review your current transfer balance to determine if you can take full advantage of this change.
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Transition to Retirement (TTR) Pensions
A Transition to Retirement (TTR) pension allows individuals to access part of their superannuation while still working. However, TTR pensions are not considered part of the retirement phase and do not count toward the TBC. Once an individual meets a full condition of release, such as reaching age 65 or permanently retiring, the balance of the TTR pension will count towards the cap. If you’re planning to meet a condition of release soon, it’s important to consider the timing to maximise the increased TBC.
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Impact on Estate Planning and Super Strategies
The TBC increase may also affect your estate planning. If you wish to leave a tax-effective superannuation legacy for your beneficiaries, it’s a good time to review your superannuation arrangements and take full advantage of the larger tax-free balance. This could influence decisions around withdrawals, recontributions, and the structure of your superannuation assets.
Key Actions to Consider
With the increase in the TBC, here are some important actions for superannuation holders:
- Review your current superannuation balance to assess how much of the cap you have used. Also, whether you can transfer additional funds into the retirement phase after 1 July 2025.
- If you are planning to start a retirement phase pension, evaluate the timing to determine whether it’s more beneficial to commence before or after the increase in the cap.
- Those with a TTR pension should assess how the higher cap will impact their retirement planning.
- Consult a financial planner to ensure your superannuation is structured in the most tax-effective way, helping you make the most of the increased cap.
Final Thoughts on the Transfer Balance Cap Increase in 2025
The increase in the TBC to $2 million presents a positive change for those approaching retirement, allowing them to hold a larger amount in the tax-free pension phase. While the change happens automatically, individuals who are proactive in their superannuation planning can benefit the most. By understanding how the cap increase affects your situation and making informed decisions, you can maximise your retirement savings and secure a more financially comfortable future.
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