The transfer balance cap applies to the total amount of superannuation that has been transferred into retirement phase. The balance of assets in pension phase can be held across several accounts, so the number of accounts is immaterial.

The amount of the lifetime cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with consumer price index. The ATO says the amount of indexation you will be entitled to “will be calculated proportionally based on the amount of your available cap space”. It says that if, at any time, you meet or exceed the cap, you will not be entitled to indexation.

You will be able to make multiple transfers into the retirement phase as long as you have available cap space.

The transfer balance account works in a similar way to a bank account. Amounts you transfer to, or are otherwise entitled to receive, from the retirement phase give rise to a credit (increase) in your transfer balance account. Certain transfers out of the retirement phase give rise to a debit (decrease) in your transfer balance account. The total value of all of the credits and debits to your transfer balance account at the end of a financial year will count towards the calculation of your total superannuation balance.

The cap limits the amount that you can transfer into retirement phase to start a pension or annuity over the course of your lifetime. The cap also includes the value of pensions or annuities you may start to receive for some other reason, for example:

  • your spouse has died and you are receiving, or start to receive, a pension from their superannuation, and
  • your former spouse has been ordered to pay you a portion of their pension income stream as part of a family court settlement.

The cap does not apply to any subsequent growth or losses. This means that:

  • if you start a pension with assets of $1.6 million and the value of the assets that feeds that pension grows to $1.7 million, you will not exceed your cap
  • if you start a pension with $1.6 million and the value of assets goes down over time as you use it to live on or you suffer losses, you can’t “top up” your pension account. You will still be able to access other superannuation amounts you may hold in accumulation phase by taking these as a “lump sum”.

The transfer balance cap will also apply to future “innovative” income stream products. Transition to retirement income streams (TRIS) will not count towards your transfer balance cap (as from July 1, 2017).

When calculating if you have exceeded your cap, the ATO says that it will subtract the value of any structured settlement contributions you’ve made. It also says that if, at July 1, 2017 the total value (as June 30, 2017 or before) of your retirement phase income streams is between $1.6 million and $1.7 million, you have six months to remove the excess capital without penalty.