As of July 1, the transfer balance cap — the limit on how much you can move into a tax-free retirement phase super pension — has risen to $2 million.

This is welcome news for anyone planning to commence their first retirement phase pension in the 2025–26 financial year. They’ll now start with a personal cap of $2 million.

But here’s the catch: not everyone gets the same increase. Your personal transfer balance cap is determined by when you started your first pension and how much of the cap you used at that time — and since.

Example 1: Fixed Cap from Past Use

Take Linda, for example. She started her retirement phase pension back when the general cap was $1.9 million. Because she used the full amount at that time, her personal cap is now locked at $1.9 million — forever.

This doesn’t mean Linda has to keep her pension balance at that level. It can grow well beyond $1.9 million — even past $2 million — and she doesn’t need to make any changes. Why? Because what counts for cap purposes is the starting value of the pension, not its future growth.

Example 2: Partial Use Unlocks a Partial Increase

Now let’s look at Daniel. He started his pension on July 1, 2024, when the general cap was still $1.9 million. At the time, he only transferred $1.425 million into the pension, using 75% of his cap.

Because Daniel didn’t use the entire cap, he’ll benefit — in part — from the increase to $2 million. He’s entitled to 25% of the $100,000 increase (the portion he hadn’t used), giving him an extra $25,000. So his new personal cap is $1.925 million from July 1, 2025.

That means he could start another pension of up to $500,000 ($1.925M minus $1.425M) without breaching his cap.

Importantly, the value of Daniel’s existing pension today is irrelevant. Even if market gains have boosted it to $1.8 million, his cap usage is still assessed from when he started the pension — not what it’s grown to.

Can You Game the System by Stopping a Pension?

Not really. Say Daniel wanted to “reset” his cap by stopping his pension before June 30, 2025 (known as commuting the pension). Unfortunately, that won’t change his outcome.

The cap increase formula is cleverer than that. It looks back across your super history and identifies the highest amount you’ve ever used of your cap. Any future increases are then calculated based on the unused portion at that point in time.

This is why some people strategically wait until July 1 to start a pension in years when the cap is increasing — even if they won’t use the full cap. Starting after the increase locks in a higher personal cap, offering more flexibility later.

A Special Case: Transition to Retirement Pensions

One notable exception is transition to retirement (TTR) pensions. These are for people aged between 60 and 65 who haven’t fully retired but want to access some of their super.

TTR pensions don’t count towards your transfer balance cap — and there’s no limit on how large they can be. But there’s a trade-off: they don’t get the same tax advantages.

Super funds paying TTR pensions still pay normal tax on earnings, whereas funds paying retirement phase pensions receive a full tax exemption on the earnings attributed to the pension account.

Eventually, though, all TTR pensions convert to retirement phase pensions — typically at age 65 — at which point the cap rules apply.

If you would like to discuss superannuation strategy further, please get in touch.