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.
