The transfer balance cap: how it works in 2026-27

The transfer balance cap is a lifetime limit on the total amount of superannuation you can transfer into retirement phase — the phase where your savings support an income stream and the earnings on those savings are tax free. It has applied since 1 July 2017, and you can keep making transfers into retirement phase as long as you remain below your cap.

There are two caps to keep straight. The general transfer balance cap is the economy-wide figure set for each year. Your personal transfer balance cap is your own lifetime limit — set equal to the general cap on the day you first start a retirement-phase income stream, and adjusted differently from that point on. The two are often different amounts, which is where most confusion about “the cap” comes from.

On 1 July 2026 the general transfer balance cap indexed by $100,000, from $2 million to $2.1 million. Indexation is automatic under the existing law — the general cap rises in line with the consumer price index, in $100,000 increments, whenever the index triggers an increase. Whether and when the next increase occurs depends on future CPI.

When you start a retirement-phase income stream for the first time, your personal transfer balance cap equals the general cap at that moment. Someone starting their first pension on or after 1 July 2026 gets a personal cap of $2.1 million. Someone who started in 2019 began with a $1.6 million cap — and their cap today depends on how each indexation since then applied to them.

Existing caps do not simply jump to the new general cap. If you already had a transfer balance account and have never reached or exceeded your cap, each $100,000 increment is applied proportionally, based on the share of your cap you have never used. If the highest-ever balance of your transfer balance account reached or exceeded your personal cap, you receive no indexation at all — your cap stays where it is.

You never need to calculate this blind: your personal cap, available cap space and transaction history are shown in ATO online services — sign in to myGov, select Australian Taxation Office, then Super → Information → Transfer balance cap.

The ATO measures you against your cap through a transfer balance account — in effect a running ledger of how much super you have transferred into retirement phase, less retirement-phase amounts you have taken out as lump sums. It starts on the day you first receive a retirement-phase income stream after 1 July 2017 (or on 1 July 2017 if you were already receiving one on 30 June 2017), you have only one account covering every retirement-phase interest in every fund, and it remains active until death.

Two consequences of that last pair are worth sitting with. Because pension payments are not debits, drawing a larger pension never frees up cap space. And because investment movements are ignored, a market fall does not create room to top the account up — if you have already used all of your personal cap space, a diminished balance cannot be replenished.

One timing quirk: for a reversionary death benefit income stream, the credit is valued when the beneficiary first becomes entitled to payments (usually the original member’s date of death) but does not arrive in the beneficiary’s transfer balance account until 12 months after that date.

Exceed your personal cap and you generally have an excess transfer balance: the amount above your cap plus notional earnings on the excess. You must remove the excess by commuting it — converting it to a lump sum or moving it back to accumulation — and you are liable for excess transfer balance tax. Taking extra or larger pension payments does not create a debit and will not rectify an excess.

Notional earnings compound daily at a rate based on the general interest charge: the 90-day bank accepted bill yield (a benchmark published by the Reserve Bank of Australia) plus 7 percentage points, divided by the number of days in the calendar year. Earnings keep accruing until your transfer balance account is at or below your personal cap — so an unaddressed excess grows every day.

The tax itself: 15% of the notional earnings the first time you have an excess transfer balance, increasing to 30% if you have an excess again. It is due and payable 21 days after the assessment issues, and interest accrues on unpaid amounts.

Capped defined benefit income streams — lifetime pensions regardless of when they started, plus lifetime annuities, life-expectancy pensions and annuities, and market-linked pensions and annuities that existed just before 1 July 2017 — are counted towards the cap at a modified amount called the special value, which your fund calculates and reports. For a lifetime pension or annuity, the special value is the annualised entitlement multiplied by 16; for non-commutable life-expectancy or market-linked products, it is the annual entitlement multiplied by the years remaining in the product, rounded up.

Because these products generally cannot be commuted on demand, a capped defined benefit income stream will not give rise to an excess transfer balance by itself. But a combination of an account-based pension and a capped defined benefit income stream can create an excess — and the excess must then be commuted from the account-based income stream, with excess transfer balance tax applying as usual.

A separate measure — the defined benefit income cap, $131,250 for 2026-27 (up from $125,000 in 2025-26) — governs how the income is taxed. For a person 60 or over whose defined benefit income comprises a taxed element or tax-free component, 50% of defined benefit income above the cap is included in assessable income.

Holders of legacy retirement products also have a live window: from 7 December 2024 until 6 December 2029, relaxed commutation rules allow a range of legacy pensions — including capped defined benefit income streams — to be fully commuted, with the full commutation producing a debit in the transfer balance account.

Your transfer balance account is not the same thing as your total superannuation balance. They are calculated differently and used for different purposes: the transfer balance account measures you against the retirement-phase cap, while total super balance counts all your super — accumulation and retirement phase — and drives eligibility for contribution measures. Some of those measures set their total super balance threshold equal to the general transfer balance cap, so the 1 July 2026 indexation flows through to the total super balance tests that govern the non-concessional contributions cap and bring-forward arrangement, carry-forward concessional contributions, the work-test exemption, the spouse tax offset and government co-contributions. The specific thresholds are covered in our companion resource on contribution caps for 2026-27.