As Australia's superannuation system evolves, so do the rules around how much of your super you can move into the tax-free pension phase. One of the most important updates coming into effect on 1 July 2025 is the increase of the transfer balance cap to $2 million.

But what exactly is the transfer balance cap, and how does it affect your retirement income, tax planning, and super strategy? Whether you’re close to retirement or planning well ahead, here’s what you need to know.

What is the transfer balance cap?

The transfer balance cap is an important concept if you're heading into retirement or already drawing a pension from your super.

The transfer balance cap is a limit on the total amount of super that you can be transferred into a retirement phase pension after retiring (generally after age 60), where the earnings and pension payments are tax-free.

As of 1 July 2025, the cap is set to increase to $2 million (up from $1.9 million in 2024–25).

This means you can only transfer up to $2 million from your super into a retirement phase pension account. Any amount above the cap must remain in the accumulation phase, where earnings are taxed at 15% or withdrawn from super.

A $100K increase to the transfer balance cap (from $1.9M to $2M) might not seem like a game-changer. But when you look at the long-term tax impact, it can actually make a meaningful difference.

Why does the cap exist?

The transfer balance cap of $1.6 million was introduced in 2017 to limit the amount of tax-free retirement phase pensions Australians could commence from super. It’s designed to make the super system more equitable and sustainable, ensuring generous tax concessions don’t disproportionately benefit high-net-worth individuals. This cap increases by $100,000 based on the Consumer Price Index. This cap has since increased to $1.7 million, then $1.9 million, and $2 million in 1 July 2025.

How does the $2M cap affect you?

Example: How it works

Let’s say your total super balance is $2.4 million when you retire:

• You can transfer $2 million into a retirement phase pension in FY 2025-26— earnings on this amount are tax-free.
• The remaining $400,000 stays in your accumulation account, and earnings on it are taxed at 15%.

You can also keep investing the accumulation account or use it for other strategies — just know it won’t get the same tax perks.

What if you already have a pension?

If you already started a pension before the cap changed (say when the transfer balance cap was $1.6m or $1.7m), you don’t automatically have the $2m cap. You will have your own personal transfer balance cap based on when you started your first retirement phase income stream and how much of the transfer balance cap you have used since. You can commence a retirement phase pension only if you have unused transfer balance cap space.

You can check your personal transfer balance cap via the ATO online portal (myGov).

Other things to keep in mind

The $2M cap is not per pension account – the transfer balance cap is a liftetime limit on the amount you can transfer into one or more retirement phase accounts. You may be able to ‘free up’ some transfer balance cap space where you move some of the pension back to your accumulation account or withdraw from the pension as a lump sum. The transfer balance cap is separate from the total super balance limits, which affect non-concessional contributions.

If you exceed the cap, you’ll have to remove the excess and pay tax on the earnings of the excess amount.

Why it still matters (even if you're not super rich)

Yes, the $2M transfer balance cap is mainly aimed at wealthier super members. But it's still worth knowing about it if you're building a healthy super balance, doing long-term planning, or managing super with a partner.

It’s not just about today — it’s about setting up your future tax efficiency and retirement income.

Super balances are growing fast

Thanks to compounding and decades of contributions, many Australians — especially couples — are projected to reach or come close to the cap by retirement, particularly if they own property in SMSFs (self-managed super funds), salary sacrifice regularly or make additional after-tax (non-concessional) contributions.

You might not be near the cap now, but in 10–20 years, you or your partner could be.

Planning contributions strategy

If you’re under 60 and actively contributing to super, it’s important to be aware that the transfer balance cap exists. This knowledge can help you plan more effectively by considering not only how much you contribute, but also the type of contributions you make — whether before-tax (concessional) or after-tax (non-concessional).

It affects couples differently

For couples, each spouse has their own $2M cap. This creates planning opportunities. Combined, a couple could have up to $4M in tax-free pension accounts. If one partner has a higher balance, strategies like splitting eligible contributions or contributing super for the spouse with the lower balance can help even up super balances between the couple and maximise the use of each spouse’s $2M cap.

Estate planning and tax

When you pass away, the tax components of your super and how much is in the pension phase vs the accumulation phase — can have significant implications for both how your super is taxed and how it's distributed to your beneficiaries.

Whether your super is in pension or accumulation phase doesn’t change the death benefit tax rules directly, but it can affect how much tax your beneficiaries may end up paying.

If you’re planning ahead, it’s worth reviewing your super phase, your beneficiary nominations, and possibly use strategies like withdrawing and re-contributing after tax contributions to super to reduce the taxable portion of your super — especially if adult children are likely to inherit it.

Strategic tips for super members

It's a good idea to review your super balance regularly — at least once a year — and even more closely as you approach retirement.

If you're under 60 and starting to reduce your working hours, it may be worth considering a Transition to Retirement (TTR) strategy to supplement your income while continuing to grow your super.

Speaking with a financial adviser can help you uncover opportunities to boost tax efficiency through strategies such as making spouse contributions, taking advantage of downsizer contributions, or structuring your pension and accumulation accounts to optimise how and when you withdraw your super and to optimise tax outcomes.

Final thoughts

The increase of the super transfer balance cap to $2M is good news for retirees — allowing more of your savings to enjoy tax-free earnings. While it primarily affects higher-balance individuals, it’s still a key consideration in any smart retirement strategy.

Even if you’re not at the cap now, with smart planning, compounding, and continued contributions, many Australians could reach it — especially dual-income couples or those with long contribution histories.