Superannuation Fund in Pension phase

The Transfer Balance Cap (TBC) is a limit imposed on an individual’s superannuation balance that is available to start a pension. This limit was introduced on 1 July 2017 at $1.6 million, but this has been newsworthy in recent months because the limit has increased to $1.9 million.

This increase has created wealth planning opportunities, from commencing pensions to making additional (non-concessional) super contributions.

Tax-free pensions are very attractive because the superannuation fund does not pay any income tax on its earnings once a pension is commenced, and the pension payments are tax-free for those over 60.

Members who have already started pensions before 1 July 2023 will be unable to take advantage of this increase, not even the difference of the $200,000 indexation.

There are opportunities and strategies where a spouse or partner has a balance below the $1.9 million amount. Consider the case of a couple both aged 65, One with a superannuation balance of $2.2 million and the other $1.6 million.

The person with the higher balance could withdraw $300,000 from their superannuation member account tax-free and contribute it to their spouse’s account, increasing the spouse balance from $1.6 million to $1.9 million. They could both start $1.9 million tax-free pensions and both remain within the TBC.