Transfer Balance Cap to Increase to $2.1 Million from 1 July 2026
By Craig Phillips, Snr Financial Adviser Phillips Wealth Partners
Following the release of the latest Consumer Price Index (CPI) figures, an important change to Australia’s superannuation system has been confirmed: the general transfer balance cap (TBC) will increase from $2.0 million to $2.1 million on 1 July 2026.
This adjustment creates new planning opportunities for many Australians approaching or already in retirement, particularly those with larger superannuation balances or those yet to commence a retirement‑phase pension.
Background: What Is the Transfer Balance Cap?
The transfer balance cap limits how much superannuation an individual can transfer into the tax‑free retirement phase, typically through account‑based pensions or similar income streams. Amounts above the cap must remain in accumulation phase, where investment earnings are generally taxed at up to 15%.
Introduced in July 2017 at $1.6 million, the cap is indexed periodically to CPI in $100,000 increments. It rose to $1.9 million in July 2023 and $2.0 million in July 2025. The upcoming increase to $2.1 million continues that indexation trend.
Why the Cap Is Increasing Now
The Australian Bureau of Statistics (ABS) reported that CPI rose 3.8% in the 12 months to December 2025, up from 3.4% the previous month. This level of inflation was sufficient to trigger indexation of the transfer balance cap for the 2026–27 financial year. [abs.gov.au]
As a result, individuals commencing a retirement‑phase income stream for the first time on or after 1 July 2026 will be able to transfer up to $2.1 million into the tax‑free pension environment.
How Existing Pensioners Are Affected
For Australians who have already commenced a retirement‑phase pension, the outcome is more complex. Rather than automatically receiving the full $100,000 increase, indexation is applied proportionally based on the percentage of the cap that has previously been used.
SMSF Alliance managing director David Busoli explains that each individual’s personal TBC must be calculated separately, based on how much of their cap has been utilised at its highest point. [smsfadviser.com]
For example:
- If a person used 50% of the previous $2.0 million cap, they may receive 50% of the $100,000 indexation, lifting their personal cap to $2.05 million.
- If a person has already fully utilised their transfer balance cap, they will not receive any increase at all.
Most individuals will be able to view their updated personal transfer balance cap through their ATO online services via myGov once indexation is applied.
Contribution Opportunities May Also Expand
The transfer balance cap plays a broader role in the superannuation system than just pensions. It also affects eligibility for certain contribution strategies, including non‑concessional contributions (NCCs) and related planning opportunities.
Contribution caps are indexed separately, based on Average Weekly Ordinary Time Earnings (AWOTE) rather than CPI. With wage growth remaining strong, it is widely expected that these caps will also increase from 1 July 2026. [smsmagazine.com.au]
If confirmed by the Australian Taxation Office (ATO) in March:
- The concessional contribution cap is expected to rise from $30,000 to $32,500
- The standard non‑concessional cap would increase from $120,000 to $130,000
- The three‑year bring‑forward cap could rise to $390,000, subject to total super balance thresholds
These increases could allow eligible Australians to contribute more into super in a tax‑effective manner.
Timing Considerations Are Critical
MLC head of technical services Jenneke Mills highlights that timing decisions in the lead‑up to 1 July 2026 may materially affect outcomes. [smsfadviser.com]
For instance:
- Individuals who have met a condition of release but have not yet commenced a pension may benefit from waiting until after 1 July 2026 to access the higher cap.
- Those currently holding a transition‑to‑retirement (TTR) income stream who will satisfy a full retirement condition before 1 July may wish to consider whether delaying entry into retirement phase could increase their available tax‑free pension balance.
Similarly, individuals close to eligibility thresholds for government co‑contributions or spouse contribution tax offsets may find the higher general TBC opens up additional opportunities, provided timing and total super balance requirements are met.
What About Division 296?
There remains ongoing debate as to whether the government will apply indexation to the proposed Division 296 $3 million and $10 million superannuation tax thresholds. While changes announced in late 2025 indicate these thresholds are intended to be indexed, further legislative clarity is still expected during 2026. [superguide.com.au]
The increase in the transfer balance cap to $2.1 million is a welcome development for many Australians, but it also adds another layer of complexity to retirement and contribution planning. The interaction between CPI‑driven caps, AWOTE‑linked contribution limits, and individual circumstances means personalised advice is more important than ever.
With several moving parts expected to be finalised in coming months, now is an ideal time to review superannuation strategies and ensure retirement plans remain aligned with both the rules and long‑term objectives.
References
- Australian Bureau of Statistics – Consumer Price Index, Australia, December 2025 [abs.gov.au]
- Australian Taxation Office – Transfer Balance Cap [ato.gov.au]
- SMSF Adviser – TBC set to increase to $2.1m from July 2026 [smsfadviser.com]
- SMS Magazine – Contribution caps set to rise in 2026 [smsmagazine.com.au]
- SuperGuide – Division 296 super tax explained [superguide.com.au]