Following the release of the December 2024 quarter consumer price index on 29 January, the general TBC is expected to increase from $1.9 million to $2 million on 1 July 2025, with the Australian Taxation Office (ATO) confirmation expected in March.
While the higher cap won’t take effect until 1 July and clients who have fully used their TBC won’t benefit from the increase, there may be advice opportunities both before and after 1 July for clients who:
- Are yet to start a retirement phase pension.
- Have not fully utilised their personal TBC and are looking to transfer additional amounts into retirement phase.
- Have a transition to retirement pension where they will meet a full condition of release before 30 June.
Here are some key issues to consider.
Start a retirement phase pension before or after 1 July?
When advising clients wishing to start a retirement phase pension for the first time, advice should consider whether it’s best to:
- Start the pension now to benefit from tax exempt investment earnings on up to $1.9 million.
- Wait until 1 July 2025 to benefit in full from the higher TBC.
The best outcome for each client will depend on their specific needs and circumstances, including:
- Where the fund will realise a capital gain before 1 July 2025, the tax benefit of realising the gain in pension phase.
- Cash flow needs (and whether a lump-sum withdrawal from accumulation could assist in the short term).
- The likelihood that the client could reach the TBC in the future.
- Any future entitlement to a super death benefit (including an insurance component) and the benefit of a higher personal TBC.
When should you transfer additional super to retirement phase?
Clients who have already started a retirement phase pension but never fully used their personal TBC are eligible to access a proportion of the general TBC increase.
The additional cap amount that can be accessed depends on the “unused proportion” of the client’s personal TBC and their highest ever transfer balance account (TBA).
Modelling can help to determine whether clients who are already in retirement phase should:
- Add additional amounts to retirement phase (including pension refreshes) before 1 July 2025.
- Wait until after 1 July 2025 to benefit from proportional indexation.
How to calculate a client’s indexed TBC from 1 July 2025
While a client’s indexed TBC from 1 July 2025 will be available on myGov in the new financial year, you may need to calculate this before providing advice in the lead-up to 1 July to determine the most appropriate recommendation.
A client’s indexed TBC from 1 July 2025 will be their: personal TBC for 1 July 2024 + (unused proportion % x $100,000).
The unused proportion is calculated as follows: unused proportion % = (1 – (highest ever TBA / personal TBC*)) x 100.
Where:
- Highest ever TBA is the highest ever value in the TBA.
- Personal TBC is the personal TBC at the time of the highest ever TBA balance.
* Rounded down to two decimals (e.g. 0.568 is rounded down to 0.56).
For more information and examples of how this calculation is applied, visit the ATO website.
What about clients with transition to retirement pensions?
Transition to retirement (TTR) pensions aren’t in retirement phase and aren’t assessed against the TBC until a full condition of release is met. This happens:
- Automatically when the member turns 65.
- At the time the trustee is notified that the member has met certain other conditions of release, such as permanent retirement, permanent incapacity or terminal illness.
Where a client has a TTR pension, it’s important to review their circumstances prior to their 65th birthday or notifying the trustee that another condition of release is satisfied. For example, clients with a TTR pension balance greater than their available cap space can roll the TTR back to accumulation phase to avoid an excess TBC. Where the TTR pension becomes a retirement phase pension prior to 1 July 2025, this will impact the client’s TBC and any personal indexation from 1 July.
Where can you obtain TBC information?
The best starting point to locate TBC information is for the client to log into myGov, where they will find:
- TBA credits and debits.
- Highest ever TBA.
- Current personal TBC (including proportional indexation applied).
- Available cap space.
TBC information may also be obtained by calling the ATO super enquiries line on 13 10 20 or by requesting a transaction history from the client’s super fund(s).
It is important to review the accuracy of a client’s TBA reporting. If the information is incorrect, work with the client’s super fund(s) and ATO to correct any error or determine whether it is just a delay in reporting.
Richard Edwards, senior consultant, technical communications, MLC.
