Transfer Balance Cap, July 1 changes, superannuation, retirement income streams

Transfer Balance Cap explained

Will you be affected on 1 July?

On 6 February we reported that Consumer Price Indexation of the $1.7 million super Transfer Balance Cap means it will increase to $1.9 million on 1 July.

That change has now been confirmed and it will make a major difference to retirement incomes for many Australians.

So what is the Transfer Balance Cap? And how likely is this increase to change your income?

Defining the Transfer Balance Cap

A Transfer Balance Cap is the ‘lifetime limit on the total amount of capital that individuals can transfer into the retirement phase to support super income streams.’ This cap was introduced on 1 July 2017 at $1.6 million, and due to CPI indexation, rose to $1.7 million on 1 July 2021. 

Why is it changing again?

As measured by the CPI, increases to the cost of living are used as a factor to index retirement income, including the Age Pension and the amount you can transfer to your income stream account. This indexation is a recognition of the fact that retirees need more income to cover regular household expenditure, be they recipients of government benefits or self-funded. 

Will this change your situation?

This depends upon whether your super is in accumulation or decumulation mode as well as your current Transfer Balance Account Balance. 

If your super is still entirely in accumulation (i.e. you are most likely a pre-retiree), you will benefit from the new cap of $1.9 million, as, from 1 July,  you will be able to transfer an extra $200,000 into a retirement income stream if you have reached Preservation Age. Investment earnings in retirement income streams are not taxed.

If you have already commenced a retirement income stream and have transferred the previous maximum amount (either $1.6 or $1.7 million), you will not benefit from the upcoming increase.

If you have already commenced a retirement income stream, but with an amount below the previous cap, you may benefit from a proportionate adjustment. This depends upon a number of factors, including the nature of the retirement income stream and your current Transfer Balance Account balance.

Do you need to act?

A record  of your current balance is available on the ATO section of the MyGov website. 

With reference to the upcoming change, the ATO notes that, while indexation will occur on 1 July 2023, it won’t be displaying member’s personal transfer balance caps until 11 July 2023. When you have confirmed your personal transfer balance cap you will either have used the full amount in your super pension, or you may have room to transfer more.

Maximising your retirement income streams

After saving hard during a lifetime of work, when we enter retirement most of us want our money to work as hard as we have. Ensuring you obey the rules around retirement income streams, in particular, correctly managing the transition to an Account-Based Pension is critical to ensuring sufficient cashflow. If you need more support on how to take the changes to the Transfer Balance Cap into account, then our tailored superannuation advice consultations will enable you to get the answers you need.

What do you think about this change? 

Is it going to change your own situation?

Or is it only for a small group of retirees?