Reading time: 1 minute
The ATO has confirmed that from 1 July 2021, the Transfer Balance Cap (TBC) will increase by indexation from $1.6 million to $1.7 million.
This creates opportunities for some current retirees to increase the amount in their tax-free account-based superannuation pension. And for those who are on the cusp of retirement, it may be worth delaying a super pension until after 1 July.
Remind me, what is the TBC?
In a nutshell, your TBC is the maximum amount you can have in your tax-free pension account.
How will indexation work?
This indexation from 1 July 2021 will result in the following three implications:
1. Pensioners who commence an account-based pension prior to 1 July 2021, and utilise their $1.6 million TBC, cannot increase their personal TBC. So, if you had commenced an account-based pension on 1 July 2019 with $1.6 million, the indexation increase does not apply to you.
2. Anyone commencing an income stream on or after 1 July 2021 will have a personal TBC of $1.7 million.
SuperGuide Premium is ad-free
3. Pensioners who commenced an income stream prior to 1 July 2021 and have not fully utilised their $1.6 million TBC may be able to proportionately increase their personal TBC (but not the full $100,000 indexation). In such a case, a pensioner’s ‘unused cap percentage’ of their TBC will be used to proportionately apply indexation.
Unused cap percentage (rounded down to the nearest whole number) is calculated as follows:
The used cap is the highest value in your TBA, and TBC is the TBC at time of its highest value.
Hence, the increase in your TBC = unused cap percentage x $100,000 (the increase in the TBC due to indexation). The following example illustrates how this applies in real life.
If you have already commenced an account-based super pension, SuperGuide has created the simple calculator (below) to help you work out your new TBC from 1 July 2021.
Enter your current TBC amount in whole dollars without commas.
The TBC indexation increase will also have a follow-on effect on other aspects of super such as your Total Superannuation Balance, non-concessional contribution limits, co-contributions and spouse contribution tax offset. Please refer to the ATO’s website to get updated information.
You can track your TBC related information through your myGov account.