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Transfer Balance Cap Indexing just around the corner?

The Transfer Balance Cap (TBC) for superannuation funds first came into effect in 2017. For those in the Self Managed Super Fund (SMSF) space at the time, it felt like a genuine seismic shift. Starting at $1,600,000 and indexed according to inflation in intervals of $100,000, the TBC seemed to offer equal parts opportunity and dread. Advisors and trustees spent endless minutes asking themselves whether the coming year would see the TBC go up and how they might turn that to their advantage.

Hold on to your hats

In the five years since then, the TBC has been indexed only once. That was by $100,000 in 2021.

The TBC is a lifetime limit on the amount of superannuation that can be transferred into retirement phase (where earnings are tax exempt). When you first start a super pension, your TBC will be the then-present cap limit (currently $1.7m). When the general TBC is indexed in future years, your TBC is adjusted proportionately depending on your unused cap percentage. Where you have reached the general TBC, your TBC will no longer be adjusted with future indexing.

The cap is indexed according to inflation for the December quarter of each year. As at the time of writing, those figures were unreleased but expected imminently. And the scuttlebutt is that we can all expect an increase in the TBC. What’s interesting is that we may see an increase of $200,000, giving us a new cap of $1,900,000.

Did you say $200,000???

The TBC will index according to its own whims and schedule, which none of us can control.

For superannuation members already drawing a pension, it’s worth keeping one eye on.

But for those thinking about commencing a retirement based income stream sometime soon, it may be worth holding off until after 1 July 2023 in order to take advantage of any cap increase. At the very least, given potential tax implications that may flow from this decision, it certainly merits picking up the phone and speaking with your Aintree Group Legal advisor today.