By Millinda Cobban, Associate Director, SMSFcentral
Last reviewed 12 August 2026. Figures current for the 2026-27 financial year.
The transfer balance cap rose to $2.1 million on 1 July 2026, and the question we field most often is whether that hands every pension member another $100,000 of tax-free room. For a good number of members it does not. The cap limits the total a member can move into the tax-free retirement phase across their lifetime, and each member carries a personal cap that can sit well below the headline figure. Anything above it stays in accumulation phase, where the fund pays 15% on the earnings.
A lifetime limit, not an annual one
When a member commences a retirement-phase pension, the amount used to start it becomes a credit in their transfer balance account. The ATO maintains that account for every member, recording credits (pension commencements and certain reversionary nominations) alongside debits (commutations back to accumulation, and pension cessations).
The distinction that catches people out is that the account measures what has passed through, not what is sitting there today. A member who starts a $1.5 million pension and commutes $500,000 back to accumulation the following year has $1.5 million of credits and $500,000 of debits against their name. They have used $1.5 million of their cap even though only $1 million remains in pension phase. Investment growth inside the pension does not consume any further cap, and a fall in value does not hand any back.
Your personal cap is probably not the general cap
The general transfer balance cap is the headline number. It becomes your personal cap only if you have never held a retirement-phase pension before, in which case your personal cap is whatever the general cap happens to be on the day you commence one. Members who started a pension in an earlier year sit somewhere else entirely.
How proportional indexation works
Indexation applies only to the slice of your cap you have never used. The ATO looks at the highest balance your transfer balance account has ever reached, expresses it as a proportion of the general cap that applied at the time, and indexes the unused remainder:
Personal cap = previous personal cap + (unused proportion x indexation increase)
Three members show what that produces. The first started a $1.6 million pension on 1 July 2017, when the general cap was $1.6 million. She used 100% of her cap, so it has never indexed and it remains $1.6 million. The move to $2.1 million does nothing for her unless a commutation creates unused space. The second started an $800,000 pension on the same day, using half his cap. When the general cap first moved from $1.6 million to $1.7 million he picked up half of that $100,000 increase, taking his personal cap to $1.65 million, and each indexation event since has added half the increase. The third has never commenced a pension at all, so her personal cap will be the general cap on the day she does. Start during 2026-27 and that is $2.1 million.
| Date | General transfer balance cap |
|---|---|
| 1 July 2017 | $1,600,000 |
| 1 July 2021 | $1,700,000 |
| 1 July 2023 | $1,900,000 |
| 1 July 2025 | $2,000,000 |
| 1 July 2026 | $2,100,000 |
The cap moves in $100,000 increments in line with the consumer price index under s294-35 of the Income Tax Assessment Act 1997, which is why it holds still for a few years and then jumps.
Reporting the events: TBAR
Every SMSF now reports transfer balance events on the same quarterly cycle, whatever its members’ total superannuation balances. That has been the position since 1 July 2023, when the old concession for funds whose members all sat below $1 million disappeared. Trustees have 28 days after the end of the quarter in which an event occurred, so the dates to work to are 28 January, 28 April, 28 July and 28 October.
The events that require a report are:
- Commencement of a retirement-phase pension
- Commutation of a pension, whether full or partial
- Death of a pension member, including whether a reversionary pension continues
- Cessation of a pension
Late or missed reporting attracts administrative penalties, and it also delays the point at which the ATO can spot an excess. In practice the event that slips is rarely the pension commencement, which everybody remembers. It is the partial commutation somebody made in March and mentioned in passing in August. Keeping that flow tight is a core part of pension management.
Excess transfer balance tax
If a member’s transfer balance account exceeds their personal cap, the ATO issues an excess transfer balance determination and the member has 60 days to commute the excess back to accumulation. Removing the excess does not end the matter. Excess transfer balance tax still applies to the notional earnings on the excess for the period it sat in retirement phase, at 15% for a first breach and 30% for any subsequent one.
Those notional earnings use the general interest charge rate rather than what the fund actually earned, which can produce a liability that bears no relationship to the real return. Take a member whose personal cap is $1.7 million who commences a pension of $1.8 million. The $100,000 excess sits in retirement phase for six months before the determination arrives and the member commutes it. Notional earnings are calculated at the general interest charge rate applying at the time, so on an excess of that size held for six months the tax runs to a few hundred dollars. Small in that example, and considerably less so where an excess runs for two or three years before anyone notices.
What the higher cap actually permits
The following describes what the rules allow from 1 July 2026. None of it is a recommendation, and whether any of it suits a particular member is a question for a licensed adviser.
A member who has not yet commenced a pension can move up to $2.1 million into retirement phase, where the fund’s earnings on those assets escape the 15% tax. A member who commenced below their personal cap may still have room to start a further pension up to their indexed personal cap. Because the general cap applying on the day of first commencement sets the personal cap for life, timing matters more than most trustees expect. And the two cap systems run independently: the transfer balance cap governs what can move into pension phase, while the contribution caps govern what goes into super in the first place. A member can be constrained by one and have plenty of room under the other.
Where Division 296 fits
Division 296 applies from 1 July 2026 under legislation that passed Parliament on 10 March 2026. It imposes an additional 15% tax on the realised earnings attributable to the portion of a member’s total superannuation balance between $3 million and $10 million, and an additional 25% on the portion above $10 million. Both thresholds are indexed, and the Act as passed does not tax unrealised movements in asset values.
The two regimes operate separately but meet in practice. A member holding $2.1 million in pension phase and $1.5 million in accumulation has a total superannuation balance of $3.6 million and sits above the first Division 296 threshold. Retirement phase offers no shelter here, because the ATO assesses Division 296 against the member personally by reference to their total superannuation balance, not against the fund’s exempt income. For members caught by both, the annual return and the member reporting behind it have to be right, since the ATO builds the assessment from what the fund reports.
Common questions
Does the higher cap mean I can put more into super?
No. The transfer balance cap governs how much can move into pension phase, not how much you can contribute. Contribution caps are separate limits. The higher cap does mean more of your super can eventually sit in the tax-free phase.
What if my pension already used the whole cap?
Then your personal cap does not index at all, and the increase to $2.1 million gives you nothing further unless you commute part of your pension and create unused cap room.
Do I need to do anything when the cap increases?
The ATO updates the general cap and recalculates your personal cap from your transfer balance account history without any prompting. Using new cap space is another matter: that takes a decision to commence a new pension or top up an existing one.
Where can I see my personal cap?
Your personal cap and your transfer balance account both appear in myGov once you have linked the ATO, and your administrator can check them for you.
Does a death benefit pension count against the cap?
Yes. A reversionary pension or a new death benefit pension counts against the recipient’s transfer balance cap, which is how a surviving spouse who is already at or near their own cap ends up with an excess at the worst possible moment.
Talk to us about your fund
SMSFcentral handles pension commencements, commutations and TBAR reporting as part of our administration service. If you would like someone to look at how the increase to $2.1 million affects your fund, call 02 8412 0086 or email [email protected]. We are happy to talk it through.
This is general information only, not personal financial advice. SMSFcentral does not hold an Australian Financial Services Licence.