Indexation of the Transfer Balance Cap

13 February 2023
| By Industry |
expand image

Since 2017 we have had a transfer balance cap (TBC) regime that limits the amount that can be transferred from accumulation phase to retirement phase pension accounts.

At the time of commencement, the cap was $1.6 million. A mechanism to index this was built into the Income Tax Assessment Act 1997 (ITAA). Legislation also dictates that indexation will
only occur in increments of $100,000. We saw the first increase of the general transfer balance cap (GTBC) to $1.7 million on 1 July, 2021.

Based on recent inflation levels an increase of $200,000, to $1.9 million is expected from 1 July, 2023.

Proportional indexation
From 1 July, 2023, the personal transfer balance cap (PTBC) could be anywhere from $1.6 million to $1.9 million.

As mentioned above, the indexation amount will be a multiple of $100,000. To determine the unused cap, you:
(a) Identify the highest-ever balance in your TBA; and
(b) Identify the earliest day in which it occurs; and
(c) Express the balance determined at (a) as a percentage (rounded down to the nearest
whole number) of your TBC on the day identified in (b); and
(d) Subtracting (c) from 100%

Larry, Curly and Moe are members of the Three Stooges SMSF. They are all retired and commence pensions on 1 July, 2017.

  • Larry started his pension with $1 million and has not commenced another since;
  • Curly started his pension with $1 million. He commenced a second pension on 1 July, 2022 with $330,000; and
  • Moe started his pension with $1.6 million and has not commenced any new pensions.

He took a commutation of $400,000 on 1 January, 2023

  Larry Curly Moe
1/7/2021 indexation      
Highest ever TBA
balance to 30/6/2021
$1,000,000 $1,000,000 $1,600,000
Date of highest value 1/7/2017 1/7/2017 1/7/2017
PTBC on that date $1,600,000 $1,600,000 $1,600,000
Used cap $1m / $1.6m = 62% $1m / $1.6m = 62% $1.6m / $1.6m = 100%
Unused cap 38% 38% 0%
indexation 1/7/21
38% x $100,000 =
38% x $100,000 =


1/7/2023 indexation Larry Curly Moe
Highest ever TBA
balance to 30/6/2023
$1,000,000 $1,330,000 $1,600,000**
Date of highest value 1/7/2017 1/7/2022 1/7/2017
PTBC on that date $1,600,000 $1,638,000 $1,600,000
Used cap $1m / $1.6m = 62% $1.33m / $1.638m = 81% $1.6m / $1.6m = 100%
Unused cap 38% 19% 0%
indexation 1/7/2023
38% x $200,000 =
19% x $200,000 =
PTBC on 1/7/2023 $1,714,000 $1,676,000 $1,600,000

* The fact Moe took a $400,000 commutation does not change the application of the formula and the use of the highest-ever balance in his TBA.

Death benefit pensions

A death benefit pension will result in a credit (increase) to the TBA of the recipient. However, there is a difference in the timing of the credit, depending on whether it results from the reverting of an existing pension or the commencement of a new death benefit pension.

Mike and Carol are members of the Brady Bunch SMSF.

Mike died on 5 February, 2023 with $1.9 million in an account-based pension. Carol has $1.4 million in accumulation and has never had a retirement phase pension.

If Mike’s pension was reversionary to Carol, she would receive the pension straight away. However, the credit to her TBA will not occur until 5 February, 2024.

On 1 July, 2023, the highest-ever value in Carol’s TBA will be zero as the credit from the reverted pension is not included yet. This will give Carol a PTBC of $1.9 million, allowing her to maintain the full reverted pension in super, should she so wish.

As a side note, although not showing in Carol’s TBA, the value of the pension on 30 June will count towards her total super balance (TSB).

If Mike’s pension was non-reversionary, Carol will need to deal with the death benefit ‘as soon as practicable’. Although not legislated, it is widely accepted that action taken within six months will rarely raise concerns around acting ‘as soon as practicable’.

If Carol were to start a death benefit pension prior to 1 July 2023, the credit will occur on that day. She will be limited to the current cap of $1.7 million and face the prospect of having to withdraw any excess death benefits from the superannuation system.

If the death benefit pension is not commenced until after 30 June 2023, this would delay the timing of the credit and provide Carol with access to the higher TBC.

When Carol starts the pension will also influence whether it will count towards her TSB on 30 June 2023 or not.

Total super balance (TSB)
Indexation of the contribution cap is linked to Average Weekly Ordinary Times Earnings (AWOTE). It is anticipated the required rate will not be reached this year for an increase to occur. However, an increase in the GTBC will see an adjustment in the thresholds for non-concessional contributions (NCC).

Based on the current contribution caps, the following table highlights the difference in thresholds for this year and next:

Bring forward rule NCC cap for the
first year
TSB – 30 June
2022 (current year)
TSB – 30 June 2023
(next year)
3 years to use $110,000 Less than $1.48m Less than $1.68m
2 years to use $110,000 $1.48m to $1.68m to
1 year to use (no
bring forward
$110,000 $1.59m to $1.79m to
N/A Nil  $1.7m or more $1.9m or more

This may create strategy opportunities for some, but it is beyond the scope of this article to consider them.

Federal Budget

It is worth noting that there is a Federal Budget due in May.  The Government have already indicated that they what to finalise and legislate the objective of superannuation.  This will then set the tone for any future legislative changes and reforms for the superannuation sector. It is too early to say whether any potential changes will impact on the indexation process, or consider a freezing of the cap. 


As the law stands, we will see an increase in the TBC and the flow on effects to NCC thresholds.  However, any strategies, whether they relate to pensions or contributions, should consider the law as it currently stands but be flexible enough to change, depending on the outcome of the Budget.

Anthony Cullen is senior SMSF technical specialist at SuperConcepts.

Read more about:


Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

sidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

2 months 1 week ago
Kevin Gorman

Super director remuneration ...

2 months 2 weeks ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

2 months 2 weeks ago

In an address to the G20 Economic Ministers Forum in Brazil last week, the Treasurer spoke of weak economic growth as the balance of risks in the economy shifts slowly aw...

3 days 12 hours hence

The $125 billion fund has welcomed a senior Morningstar executive for a new policy and advice role....

13 hours hence

Ausbil’s Global SmallCap team looks at this generational change in power markets and discovers opportunities for unrecognised growth in global small-cap markets.The world...

4 years 1 month ago