Increased transfer balance and contribution caps

With effect from 1 July 2021, changes to the transfer balance cap and contribution caps provide opportunities for your eligible clients to accumulate more retirement savings than in prior years.

These changes will be welcome for many clients who wish to make additional super contributions and for those who have not commenced retirement phase pensions. Clients who have moved their super into retirement phase will also benefit from these increases, although to a lesser extent.

Calculating transfer balance caps and identifying total super balance thresholds for your clients can be complex. In this article we explain the changes, outline step by step calculations and examples to help you to maximise retirement phase pensions and contributions.

Transfer balance cap

From 1 July 2021, an increase to the super transfer balance cap will be implemented, raising the lifetime limit on the total amount of super to start retirement phase pensions. The transfer balance cap, which is indexed to the consumer price index in $100,000 increments, will increase from $1.6 million to $1.7 million.

It is worth noting that not everyone will have the same transfer balance cap. Your client’s personal transfer balance cap may be anywhere from $1.6 million to $1.7 million, depending on whether they have commenced any retirement phase pensions and how much. If a client has used 100% of their transfer balance cap in years prior to 1 July 2021, their transfer balance cap will remain at $1.6 million. If your client starts their retirement phase income stream for the first time on or after 1 July 2021, they will have a personal transfer balance cap of $1.7 million. If they have started retirement phase pensions totalling less than $1.6 million before that date, their transfer balance cap will be determined by factoring indexation on the unused portion of their cap.

Information regarding their personal transfer balance cap will be available through your clients myGov ATO account.

The calculation for those eligible to benefit from the indexation is determined by the following steps:

  1. Identify the highest balance of the transfer balance account. This is the used cap.
  2. Express the used cap as a percentage of $1.6 million (which is the general transfer balance cap when the client’s transfer balance account commenced).
  3. Round down the used cap percentage to the nearest whole number.
  4. Subtract the used cap percentage from 100% to get the unused cap percentage.
  5. Multiply the unused cap percentage by $100,000 (which is the increase in the general transfer balance cap).
  6. Add the result of Step 5 to $1.6 million. This is the client’s indexed personal transfer balance cap from 1 July 2021.


Judah - partial implementation of increased of transfer balance cap

Judah has the following transactions reported in his transfer balance account:

  • 1 July 2017 - Had account-based pension #1 with a balance of $400,000
  • 1 July 2018 - Commenced account-based pension #2 with $500,000
  • 1 July 2019 - Commenced account-based pension #3 worth $300,000
  • 30 June 2021 – he commuted $200,000 from account-based pension #1, causing his transfer balance account balance to reduce to $1,000,000.
Judah’s transfer balance account
DateTransactionDebitCreditTransfer cap balanceUnused transfer balance cap
1/07/2017 Account based pension #1 balance at 30 June 2017   $400,000 $400,000 $1,200,000
1/07/2018 Account based pension #2 commenced   $500,000 $900,000 $700,000
1/07/2018 Account based pension #3 commenced   $300,000 $1,200,000$400,000
30/06/2021 Commutation from Account based pension #1 $200,000   $1,000,000 $600,000

Judah’s highest transfer balance account amount was $1,200,000 (75% of $1,600,000).

Therefore the unused transfer balance cap is $400,000 (25% of $1,600,000). Judah’s personal transfer balance cap increases by $25,000 (25% of the $100,000 increase).

Therefore, Judah’s indexed personal transfer balance cap at 1 July 2021 will be $1,625,000 ($1,600,000 + $25,000).

Concessional contributions caps

The concessional contributions cap, indexed to average weekly ordinary time earnings (AWOTE) in $2,500 increments, will increase from $25,000 per annum to $27,500 pa from 1 July 2021.

AWOTE Dec 2020
X $25,000
X $25,000 = $27,728 rounded down to $27,500 pa.

The concessional contributions cap of clients whose total superannuation balance last 30 June is less than $500,000 is the annual concessional contributions cap plus any unused concessional contributions cap since the 2018/19 financial year.

This means the maximum concessional contributions cap available for your clients who have not made any concessional contributions since FY2018/19 is $75,000 in FY2020/21 (calculated as $25,000 for each year from FY2018/19 to 2020/21).

In 2021/22 the maximum concessional contributions cap available for these clients will be $102,500, calculated as:
$25,000 FY2018-19 +
$25,000 FY2019-20 +
$25,000 FY2020-21 +
$27,500 in FY2021-22

Clients who expect to have a total superannuation balance of less than $500,000 at 30 June 2021 and who expect a spike in income or plan to realise large capital gains on the sale of their assets may consider whether the income or sale could be realised next financial year if they have any carried forward unused concessional contributions caps and the work test is not an issue next financial year.

Non-concessional contribution caps

The non-concessional contributions cap is four times the concessional contributions cap and therefore will increase from $100,000 pa to $110,000 per annum (calculated as $27,500 x 4). This means eligible clients can really take this opportunity to bolster more after-tax contributions to superannuation.

The indexation of the general transfer balance cap also allows more of your clients to make non-concessional contributions. This is because the total superannuation balance threshold at which the non-concessional contributions cap is nil for the financial year is equal to the general transfer balance cap. Therefore the total superannuation balance threshold will increase to $1.7 million.

It is worth noting that if your client’s total superannuation balance (including balances of their pensions, accumulation accounts and any rollovers between accounts)1 at the end of 30 June 2021 equals or exceeds the general transfer balance cap, your client cannot make non-concessional contributions in the financial year 2021/22.

Increased defined benefit income cap

As a result of the increase in transfer balance cap, the defined benefit income cap will increase to $106,250 per annum from the same date. This means that recipients of capped defined benefit income, in excess of $100,000 per annum, will benefit more from tax concessions.

This applies to clients in receipt of capped defined benefit income streams (lifetime pensions, and lifetime annuities, life expectancy pensions, life expectancy annuities and term allocated pensions commenced prior to 1 July 2017) who are:

  • age 60 or older, or
  • are beneficiaries of death benefit capped defined benefit income streams where the member passed away at age 60 or older.

The defined benefit income cap is calculated as:

the general transfer balance cap / 16

The increased general transfer balance cap will increase the defined benefit income cap from $100,000 pa in FY2020/21 to $106,250 per annum in FY2021/22. This is derived from:

$1,700,000 / 16

Those who currently receive defined benefit income in excess of $100,000 per annum will have up to an additional $6,250 of that income benefit from tax concessions from 1 July 2021.

While these increases may be great news for your clients, the increased general transfer balance cap and increases in both the concessional contributions and non-concessional contributions caps will create more complexity for you as an adviser.

Consideration needs to be given to the new bring forward non-concessional contributions caps and their relevant bring forward total superannuation balance thresholds as well as establishing the correct transfer balance account to maximise your clients’ tax effective retirement savings.

If you’d like more information, please speak to your IOOF Client Solutions Manager.


1 The Total Superannuation Balance also includes certain self managed super fund limited recourse borrowing amounts and reduced by any personal injury contributions.