$2,000,000 updated transfer balance cap.

The transfer balance cap relates to the amount of money you can have in retirement in an account-based pension. This cap was first legislated on the 1st of July 2017 and started off at $1,600,000.

If we go back to the benefits of an account-based pension, they are really simple from a tax perspective meaning everything that is earnt within the pension fund from a capital or income perspective is tax free. The government thought that it was a bit too lenient allowing people with more than $1.6 million in pension phase to benefit from a 0% tax environment, which is why they brought this legislation in place. My thoughts are they brought this in place as they believe (whether right or wrong) that $1.6 million should be enough for someone’s retirement and the superannuation/pension environment is there to fund someone’s retirement only which is why there are tax concessions (not as a wealth transfer vehicle or to build more wealth you can ever spend in retirement).

Fast forward to the 2024/2025 financial year and the current transfer balance cap is $1.9 million. Then recently following the release of the December 2024 CPI (Consumer Price Index), it is expected to now increase to $2 million from 1st of July 2025. This will later be confirmed by the ATO in March 2025 likely.

Now if you started a pension back on 1st of July 2017 with the full $1,600,000 and have made no lump sum commutations as an example since – then this doesn’t mean you can move an extra $400,000 into pension phase. If you started with less than the full transfer balance cap previously, you would get a proportioned increase to your personal transfer balance cap.

But put simply, if you have never commenced a pension previously and were starting one post 1st of July 2025, it is likely you will be able to benefit from being able to start a pension with the full $2 million.