Retiring this year? What to know before starting a super pension

Mind your total super balance before making extra contributions

Your ability to make super contributions in the run-up to retirement will also depend on your total super balance (TSB).

If your total super balance at 30 June 2025 was $2 million or more, your non-concessional contribution cap for the 2025–26 financial year is zero. You can’t make any after-tax contributions without exceeding the non-concessional contribution cap.

The bring-forward rule for non-concessional contributions is also modified if you have a high TSB. In 2025–26, if you wish to contribute the maximum $360,000 permitted in one year using bring forward, you must have had a total super balance on 30 June 2025 of less than $1.76 million and must not already be in an active bring-forward period.

A higher TSB means a modified bring-forward rule.

 Just to complicate matters, a different TSB limit applies if you want to take advantage of the carry-forward rule for concessional contributions.

If you have unused concessional (tax-deductible) contribution caps from previous financial years you may be eligible to carry them forward to the current financial year in addition to your annual $30,000 limit. To take advantage of these catch-up contributions, your TSB must have been below $500,000 on 30 June the previous financial year. 

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A high TSB doesn’t restrict you from making concessional contributions using the standard annual cap, only your access to the carry-forward rule. Even if your TSB is above the general transfer balance cap of $2 million, you may continue to make concessional contributions. Remember that to make personal tax-deductible contributions you must be under age 67 or meet the work test.

Yes, it’s complicated, so it’s recommended you seek professional advice before you act.

Don’t confuse your total super balance with the transfer balance cap

There are times when trying to make sense of the super rules can make you feel like Alice in Wonderland falling down the rabbit hole. And this is one of them.

The transfer balance cap (TBC) is the maximum amount of super you can transfer into a tax-free pension account. From 1 July 2025, the general TBC is $2 million. If you started a retirement income stream before 1 July 2025, you have your own personal TBC that you can find using ATO online services via myGov (or by calling the ATO).

If the $2 million figure sounds familiar, that’s because of the restrictions it places on non-concessional contributions, discussed above. People with a total super balance equal to or higher than the general transfer balance cap on 30 June have a non-concessional contribution cap of zero the following financial year.

There is however no ‘cap’ on your total super balance. Contribution caps limit how much you can contribute to super, but there is no limit on how much you can accumulate.

If the balance you have in super when you retire is more than the TBC, you have options. You can transfer any amount up to your TBC into a retirement income stream (super pension). The excess can be kept in your super accumulation account where earnings are taxed at a maximum of 15%, be cashed as a lump sum, or a combination of the two.

Making extra contributions after you start a pension

The real benefit of starting a super pension as soon as possible once you become eligible, is the tax-free nature of pension earnings and withdrawals. The downside is that once you start a super pension you can’t tip any more money into it.

That’s not the end of the story though. If you want to make additional contributions down the track you just need a super account in the accumulation phase to contribute to. You may already have an accumulation account, or you could open a new one. Once you’ve made your contributions, you can start a second pension with the balance of your accumulation account, or you can choose to ‘commute’ your existing pension to consolidate its balance with your new contributions. That is, you can stop your pension, combine the balance with your accumulation account and restart your pension.  Either way, you need to make sure the total amount you transfer into the retirement phase remains under your transfer balance cap.

This could be a useful strategy if, for example, you decide to boost your retirement income by downsizing to a smaller home.

Making the most of downsizing

If you’re retiring this year but your age or total super balance will preclude you making any additional non-concessional super contributions, or you want to contribute more than the usual rules would allow, there is another way.

If you’re thinking of downsizing your home, you can contribute up to $300,000 of the sale proceeds into your super. This means couples can contribute up to $600,000 combined.

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The downsizer measure is designed for people who are 55 or older. Unlike most other super contributions, there is no age limit or work test requirement. This makes downsizer contributions one of the few options available to people aged over 75 to boost their super.

Downsizer contributions are not subject to the $120,000 annual non-concessional cap and can be made even if your total super balance was higher than the general transfer balance cap on the prior 30 June. 

If you use a downsizer amount to start a pension, it is counted towards your transfer balance cap.

Consider a recontribution strategy

If you are planning to retire soon, you may benefit from a recontribution strategy to reduce the tax payable on your super death benefits by non-dependent beneficiaries such as your adult children.

Just as the label says, a recontribution strategy involves withdrawing a lump sum from your super and then recontributing it to your super account, after paying any necessary tax. This allows you to reduce the taxable proportion of your super account and increase the tax-free component.

You could also choose to contribute the withdrawn amount to your spouse’s super account, subject to the usual contribution limits. This can be beneficial if your super balance is above the transfer balance cap of $2 million and your spouse has a lower super balance. That way, the two of you combined could maximise the amount you transfer into your retirement phase pensions.

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To be eligible to withdraw a lump sum from your super you must be at least 60.

The bottom line

As you can see, the rules around retirement and starting a super pension are complex and often confusing.

If you’re about to retire and haven’t sought independent financial advice, now could be a good time to do so.