The Transfer Balance Cap can be confusing, so let’s recap. Back in 2016, there was growing concern about the amount that could be held in super in the tax-free pension mode, so the Federal Government of the day introduced the Transfer Balance Cap (TBC) from 1 July 2017. This would put a dollar based limit on the amount that could be transferred to pension mode in superannuation - specifically, those with large balances could only transfer $1.6 million to pension mode, leaving the rest in accumulation phase (with earnings taxed at 15%).

Many people still think that $1.6 million is the most you can have in pension mode - this is incorrect. Having made the transfer, the amount you have in pension mode can still continue to grow to any level, (ie due to market movements etc). However, once you use up your TBC, you cannot transfer any more funds in superannuation to pension mode.

So in effect, there are three types of super fund members…

Those who have taken advantage of the TBC in full,
Those who have transferred some money to pension mode but have not reached their limit.
Those who are yet to move any funds to pension mode.

The $1.6 million limit has since been increased to $1.7 million, and may be increasing to $1.9 million on 1 July 2023. So, if you are yet to make any transfers to pension mode and you have substantial assets in superannuation, it would be prudent to wait until after June 30 to take advantage of the higher cap.

The new regulations also stated that once your superannuation balance reached $1.6 million you could make no further non-concessional contributions, although concessional contributions were fine. That number now currently sits at $1.7 million but is also expected to increase to $1.9 million on 1 July.

As an aside, there is also an expectation that the limit for non-concessional contributions may rise from $110,000 to $120,000 on 1 July 2023. This means the amount that could be contributed using the bring-forward rules would increase to $360,000.

Of course, with a Federal Budget coming in May, thee may be some surprises lurking - we’ll see.