Indexation of the Transfer Balance Cap from 1 July 2026
As part of the ongoing indexation of Australia’s superannuation system, the Transfer Balance Cap (TBC) will increase from $2 million to $2.1 million effective from 1 July 2026.
While the increase may appear straightforward, the rules surrounding Transfer Balance Cap indexation can be complex, particularly for individuals who have already commenced retirement phase pensions. Understanding how the changes apply — and whether any strategic opportunities exist — may help maximise the tax effectiveness of your retirement savings over the long term.
What is the Transfer Balance Cap?
The Transfer Balance Cap is the limit on how much superannuation can be transferred into retirement phase, where investment earnings are generally tax-free.
Once superannuation remains in accumulation phase, earnings continue to be taxed at up to 15%. In contrast, assets supporting retirement phase pensions may benefit from a 0% tax rate on earnings and capital gains, making retirement phase one of the most tax-effective investment environments available in Australia.
The cap was originally introduced on 1 July 2017 at $1.6 million and has gradually increased over time through indexation:
$1.6 million from 1 July 2017
$1.7 million from 1 July 2021
$1.9 million from 1 July 2023
$2.0 million from 1 July 2025
$2.1 million from 1 July 2026
Importantly, the Transfer Balance Cap is not a limit on how much you can hold in superannuation overall. Rather, it limits how much can be transferred into the tax-free retirement phase.
Who Receives the Full $2.1 Million Cap?
Individuals who commence their first retirement phase income stream on or after 1 July 2026 will generally have access to the full $2.1 million Transfer Balance Cap.
This commonly applies when commencing:
An account-based pension
A retirement phase income stream from an SMSF
Certain lifetime or market-linked pensions
For individuals who have never previously started a retirement phase pension, the new indexed cap becomes their personal Transfer Balance Cap.
For example:
Sarah retires in August 2026 with $1.95 million in superannuation.
She commences an account-based pension after 1 July 2026.
Sarah will have access to the full $2.1 million cap.
In this scenario, Sarah could transfer her entire super balance into retirement phase without exceeding the cap.
How Partial Indexation Works
For individuals who have already commenced a retirement phase pension prior to 1 July 2026, the rules operate differently.
Rather than automatically receiving the full $100,000 increase, indexation is applied proportionately based on the highest percentage of the cap previously used.
This is commonly referred to as “proportional indexation.”
Example of Partial Indexation
Consider the following example:
Michael commenced a retirement phase pension in 2024 when the cap was $1.9 million.
At the time, he transferred $1.425 million into pension phase.
This represented 75% of his available cap.
Because Michael has used 75% of his cap, only the remaining unused 25% is eligible for future indexation.
As the cap increases by $100,000 from 1 July 2026:
Michael receives 25% of the increase
His personal cap increases by $25,000
His adjusted personal Transfer Balance Cap becomes $2.025 million
This means every individual may ultimately end up with a different personal Transfer Balance Cap depending on their pension history.
What Happens if You Have Fully Utilised Your Cap?
If you have already fully exhausted your Transfer Balance Cap at any time in the past, you will not receive any further indexation.
For example:
Jennifer transferred the full amount of her cap into retirement phase several years ago.
Because she has already used 100% of her cap, she is not entitled to any portion of the 2026 increase.
Her personal Transfer Balance Cap will remain unchanged.
This often catches retirees by surprise, particularly those who assume everyone automatically receives the indexed increase.
Strategic Considerations Before 1 July 2026
The upcoming indexation changes may create planning opportunities for individuals approaching retirement or considering pension strategies.
However, any decision should be considered carefully alongside broader tax, investment, estate planning, and cash flow objectives.
Delaying the Commencement of a Pension
For some individuals, delaying the commencement of their first retirement phase pension until after 1 July 2026 may provide access to the higher cap.
This strategy may be particularly relevant for:
Individuals with super balances close to or above $2 million
Clients planning to retire in the next 12 months
SMSF members undertaking pension planning strategies
Individuals considering large non-concessional contributions prior to retirement
The additional $100,000 cap space could allow more assets to move into the tax-free environment.
However, delaying a pension commencement may not always be beneficial. Factors such as cash flow needs, tax implications, market conditions, and pension minimums should also be considered.
Why “Resetting” Your Cap Does Not Work
Some individuals may consider commuting their pension back to accumulation phase before 1 July 2026 in an attempt to access the full indexed cap later.
However, the legislation specifically prevents this strategy.
Your entitlement to indexation is based on the highest proportion of your cap ever used — not your current retirement phase balance.
For example:
David previously used 95% of his cap.
Before 1 July 2026, he commutes his pension back to accumulation phase.
Even after restarting a pension later, his historical usage remains 95%.
As a result, he only receives 5% of the new $100,000 indexation increase.
This means pension restructures or rollbacks generally do not improve future indexation outcomes.
Transition to Retirement Pensions and the Transfer Balance Cap
Transition to Retirement (TTR) pensions are treated differently under the Transfer Balance Cap rules.
If a member has only commenced a TTR pension but has not yet met a full condition of release — such as:
Reaching age 65
Retiring after age 60
Permanently retiring
Satisfying another unrestricted release condition
— then the pension is generally not considered to be in retirement phase.
This is because earnings on assets supporting a TTR pension remain taxable until a full condition of release is met.
As a result, individuals solely receiving a TTR pension before 1 July 2026 may still qualify for the full $2.1 million cap once they subsequently move into retirement phase.
Why Advice Matters
The Transfer Balance Cap rules are highly technical and interact with several other areas of superannuation and retirement planning, including:
Contribution strategies
Pension commencements
Estate planning
Tax minimisation
Downsizer contributions
Total Super Balance thresholds
SMSF pension structuring
Making decisions without fully understanding the long-term implications may unintentionally reduce future flexibility or tax effectiveness.
At ODV Private Wealth, we work closely with clients to structure retirement strategies that align with their financial goals, cash flow needs, and long-term wealth objectives.
If you would like to understand how the upcoming Transfer Balance Cap indexation changes may affect your retirement planning strategy, our Adelaide-based advice team is here to help.
Source: SuperCentral – Indexation of Transfer Balance Cap
For further information, or to book an appointment to ensure your business or trust affairs are in order, call ODV Private Wealth on (08) 8352 2522 or email planning@odvwealth.com.au.
General Advice DisclaimerThe information on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. You should consider whether the information is appropriate for you and read the relevant Product Disclosure Statement (PDS) before making any investment decision. ODV Private Wealth Pty Ltd ABN 28 679 606 583 | Corporate Authorised Representative (No. 001313599) of Humble Goode Financial Pty Ltd AFSL 349026.