Mar 16, 2023 / News

Superannuation

Indexation of the Transfer Balance Cap

Following the release of the CPI figures for the December 2022 quarter, the general transfer balance cap will increase from $1.7m to $1.9m on 1 July 2023. This may provide planning opportunities for clients.

The concept of the transfer balance cap (TBC) was introduced in July 2017 as the upper limit for pension balances in the retirement phase. The general TBC was initially set at $1.6m, to be indexed in increments of $100,000 according to movements in the CPI. An increase to $1.7m was triggered from 1 July 2021, and it will increase to $1.9m, from 1 July 2023. Depending on individual circumstances, clients who are intending to commence a retirement phase pension may benefit from delaying until after 30 June and taking advantage of the higher general TBC.

A member’s personal TBC can be different to the general TBC. Their personal TBC is initially equal to the general TBC which applied at the time they first began a pension in retirement mode. If the whole personal TBC was used, no further indexation will apply. Where a member has used only part of their personal TBC, the indexation rules look back over the member’s history to determine the percentage of “cap space” that existed when they had used up the most of their TBC. For example, if it was 80% in 2020, only 20% of the $200,000 indexation will be available from 1 July 2023. As this figure is set historically, reducing the balance of the member’s transfer balance account before 1 July 2023 (by perhaps commuting part of a pension) will not create any greater entitlement to indexation. The ATO provides a calculation of an individual’s cap space on its online services portal, but this in turn depends on funds providing all relevant information to the ATO in a timely manner.

The general concessional contributions cap is also indexed, but according to movements in average weekly ordinary time earnings (AWOTE) which are released in late February. It was originally set at $25,000 at 1 July 2017 and increased to $27,500 from 1 July 2021. At this stage an increase in contribution caps is not expected on 1 July 2023. The general non-concessional contribution cap is set as four times the general concessional contribution cap.

While the contribution caps are not expected to increase on 1 July, the increased TBC may provide planning opportunities in situations where the capacity to contribute has been limited because the member’s total super balance was greater than the general TBC. For example, a member cannot make non-concessional contributions if their total super balance at the last 30 June was greater than the general TBC in the current year. Non-concessional contributions might be possible again if the member’s total super balance is greater than $1.7m but less than $1.9m at 30 June 2023.

Your Nexia Edwards Marshall advisor or Alanah Boylon would be pleased to answer any queries and arrange for personalised advice applicable to your individual circumstances if desired.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.