The Transfer Balance Cap (TBC) explained

What is the Transfer Balance Cap (TBC)?

The Government gives great tax breaks to people who start pensions when they retire. Basically the super fund stops paying income tax on the investment income it earns on the pension account.

To limit that tax break, the Government limits how much anyone can put into a pension when it starts – the transfer balance cap.

How is the transfer balance cap worked out?

There is a “general transfer balance cap” which is a fixed amount that goes up periodically with inflation. It started at $1.6m back in 2017 and has increased since then. In 2025/26, for example, it was $2m and in 2026/27 it is $2.1m.

When anyone starts their very first pension in retirement, their personal transfer balance cap starts at this amount. It might stay fixed at this amount forever or it might go up a bit whenever the general transfer balance cap is increased. This depends on how much of their cap they have “used up” in the past – they only get an increase on the bit of their cap they haven’t used yet.

For example, Jake started a retirement pension in 2025/26 with $1.5m. As a result, he used up 75% of his transfer balance cap at the time (it was $2m in 2025/26) and had 25% of it left. This 25% (or $500,000) he hasn’t used yet is often called his “cap space”.

When the general cap increased on 1 July 2026, Jake’s personal cap wouldn’t be increased to $2.1m. His increase depends on his cap space – in this example he would only get 25% of the increase – taking his personal transfer balance cap to $2.025m.

The calculation can get complicated! The key thing to remember is that someone who’s already got a pension never gets the full amount of any future increases in the general cap. In fact, they might get no increase at all if they used it all when they first started a pension.

Common questions about transfer balance caps

What if my pension account grows above my transfer balance cap?

It doesn’t matter. The transfer balance cap only comes into play when a pension first starts.

Do I have to use my cap all at once?

No. Jake (earlier) started a $1.5m pension and used up some of his transfer balance cap in 2025/26. On 1 July 2026 his personal transfer balance cap increased to $2.025m. If Jake has other super and wants to start another pension, he can put up to $525,000 ($2.025m less $1.5m) into a new pension. It doesn’t matter if his first pension is much higher (or lower) than $1.5m. All that matters for the transfer balance cap is how much it was worth when it started.

Can payments from the pension account restore cap space?

It depends. Not if you’re taking normal pension payments but you do if you take a lump sum (called a “partial commutation”) from your pension.

For example, if Jake (earlier) took all his pension payments during 2025/26 and then took an extra lump sum (a commutation) of $200,000 in June 2026. He would no longer have “used up” $1.5m of his transfer balance cap, it would only be $1.3m ($1.5m less $200,000).

Unfortunately this wouldn’t get a bigger increase in his personal transfer balance cap at 1 July 2026. Those calculations are worked out by looking at how much of his cap Jake has ever used up.

What happens if I start a pension that takes me over my personal transfer balance cap?

The ATO will contact you to tell you and you’ll have to stop some of the pension. There is a formal process for this – it’s not as simple as just taking some extra money out of super. Note the ATO will contact you or your personal tax agent, not your super fund. As soon as you get a notice like this you should let your SMSF accountant or administrator know. If you don’t act on it quickly enough the tax consequences can be severe.

Does the transfer balance cap apply for all pensions?

Some people start “transition to retirement” pensions – ie, pensions they start between 60 and 65 before they’ve retired. These pensions don’t get all the same tax breaks as “retirement phase” pensions (ie, pensions being paid to people who’ve retired). So they’re also not subject to the transfer balance cap. It’s fine to start a transition to retirement pension with all of your super no matter how much you have.

You might also be interested in...

• Transfer Balance Cap Indexation explained
• How partial commutations can improve an SMSF inheritance

This article is for general information only. It does not constitute financial product advice and has been prepared without taking into account any individual's personal objectives, situation or needs. It is not intended to be a complete summary of the issues and should not be relied upon without seeking advice specific to your circumstances.