Super has numerous limits, thresholds and caps.

If you’re reaching the point where you might be looking to turn your super into a steady income stream, one of the limits you may need to consider is the transfer balance cap.

What is the transfer balance cap?

The transfer balance cap is the total amount of super that you can transfer from accumulation mode to retirement mode.

It first began to apply from 1 July 2017, when it was $1.6 million. Since then it has steadily increased, and for the year ending 30 June 2026 is $2 million.

Here’s how the transfer balance cap has increased over the past five years:

Year ending 30 June	Transfer balance cap
2022	$1.7 million
2023	$1.7 million
2024	$1.9 million
2025	$1.9 million
2026	$2 million

It’s important to understand that you only have one transfer balance cap, regardless of how many super accounts or pension accounts you have.

Super funds are required to let the ATO know every time a pension account is opened, so the ATO will know whether you have gone over your transfer balance cap.

How does the transfer balance cap increase?

The transfer balance cap is indexed to CPI (the Consumer Price Index), a widely used measure of inflation.

On 1 July 2025, the transfer balance cap increased to $2 million.

But it didn't increase for everyone. If you’ve already used all your cap – say you started a pension with $1.9 million in 2025 – you didn’t get any increase, because you had already used all your cap.

On the other hand, if you’ve used only some of your transfer balance cap, you’ll get a partial increase on the amount remaining (this is known as proportional indexation). It can be a complex calculation but thankfully the ATO keeps a record of how much of your cap is remaining via the myGov website.

How the transfer balance cap works – a few scenarios

For the purpose of the following scenarios, let’s first assume you are 65 and start a pension on 1 July 2024, when the transfer balance cap is $1.9 million.

In scenario 1, you have $950,000 in your super account and use the full amount to start a pension. This means you still have $950,000 of your cap remaining that you can make use of in future years. What’s more, this $950,000 will be subject to indexation. For example, if the transfer balance cap increases from $1.9 million to $2 million on 1 July 2026, your remaining unused cap balance will also increase in proportion, from $950,000 to $1 million.

The ongoing calculation of your personal cap can be complicated. Thankfully, the ATO keeps a record of how much of your cap is remaining. You can view your personal cap online:

· sign in to myGov

· select Australian Taxation Office

· select Super, then Information, then Transfer Balance Cap.

If you don’t have a myGov account, you can create one using your email address or Digital ID.

In scenario 2, you start your pension with $1.9 million. This means you have used all your transfer balance cap, so you will be unable to transfer any further money into retirement mode. What if a year later your pension account has grown to $1.95 million – more than the transfer balance cap – thanks to positive investment returns? That’s not an issue, because the transfer balance cap only considers how much you start your pension with.

In scenario 3, imagine your super account contains $2 million. That’s fine. You can start your pension with $1.9 million but the balance above your cap – that is, $100,000 – must stay in your super account. You can withdraw all or part of this separately at any time. But you won’t be able to invest it in a pension account, so the tax advantages applying to this $100,000 may not be as great as the amount invested in your pension account.

What happens if you go over the transfer balance cap?

If you go over the transfer balance cap, you will have to withdraw the excess amount and you may also receive a tax penalty.

In scenario 4, imagine your super account contains $2 million and you mistakenly invest the full $2 million in a pension account. Now you have a bit of an issue that you‘ll need to work through and it’s not ideal. In particular, you’ll likely end up paying a tax penalty whether you fix the issue yourself, or you receive a determination from the ATO.

Let’s imagine you’re unaware of your error, and you’ve exceeded your cap by $100,000. You will almost certainly receive a determination – called a ‘commutation authority’ – from the ATO. The ATO will require you to shift the $100,000 excess, plus any investment earnings relating to that $100,000, to a super account. Your super fund must action the commutation authority and tell the ATO what action they have undertaken within 60 days.

You will also have to pay an "excess transfer balance tax". In the scenario above, this is payable on any investment returns relating to the excess $100,000. For example, the ATO may require you to shift a total of $115,000 back to a super account – that is, the original $100,000 plus $15,000 in earnings. The excess transfer balance tax will apply to the $15,000 in earnings. The first time you breach the transfer balance cap rules, the tax on this amount is 15%. Any further breaches result in a 30% tax. So in short, it’s really not worth breaking the transfer balance cap rules.

How commutations can help reduce your transfer balance cap

One of the welcome features of most pension accounts is that in addition to a regular income, you can make lump sum withdrawals if you need the money – these are known as ‘commutations’.

The great thing about a commutation (as opposed to a regular pension payment) is that it gives you back some of your transfer balance cap.

Let’s go back to scenario 3 above, where you started your pension with $1.9 million and left $100,000 in a super account to avoid going over your transfer balance cap.

It’s now a year later and you want to make a large withdrawal from your pension account – say $200,000. This is in addition to the regular fortnightly payments you receive from your pension, which equal around $100,000 a year.

In theory, you could take the $200,000 out as a regular pension payment – there’s no maximum payment amount, so that would work.

But there may be a smarter way.

You could, for example, choose to keep taking out your regular fortnightly payments, and take out the additional $200,000 you need as a commutation. If you do this, the ATO will adjust your original transfer balance cap down by the amount of the commutation, reducing it to $1.7 million ($1.9 million minus $200,0000).

This means you can now shift some or all of the $100,000 from your super account into pension mode and still stay under your transfer balance cap.

You can’t add money to a pension account once you start it. So, you would need to start a second pension account.

Think about getting professional advice

The transfer balance cap can be complicated. And if you’re thinking about the transfer balance cap, you’re likely starting to think about retirement more generally.

As retirement approaches, there are many ways to maximise your super balance and potential spending power.

Within the super system, this includes concessional contributions and non-concessional contributions, downsizer contributions, and spouse contributions (including contribution splitting), as well as the carry-forward rule and bring-forward rule.

An adviser can help you create a strategy that balances income, risk, and longevity to ensure you have enough funds to provide a comfortable retirement.