Transfer Balance Cap

An overview of how the Transfer Balance Cap (TBC) applies to CSS, DFRDB, MilitarySuper and PSS pensioners.

This information is particularly important for CSS, DFRDB, MilitarySuper and PSS pensioners with:

a superannuation income stream* (also known as a pension entitlement) of more than $118,750 per annum
a pension entitlement that is likely to exceed $118,750 per annum in future
multiple retirement products administered by CSC
additional retirement products outside those offered by CSC.

*Some of our benefits have been reclassified as lump sum payments. If your benefit is classed as a lump sum payment this information may not apply to you.

When we refer to 'CSC pensions' in this article, we are specifically referring to customers who are in receipt of CSS, DFRDB, MilitarySuper and PSS pensions.

This page contains:

For a comprehensive overview of the general workings or application of the contributions cap, visit the Australian Taxation office (ATO) website. You may also want to speak to a licensed financial adviser to fully understand the impacts of this measure.

What is the Transfer Balance Cap?

The Transfer Balance Cap (TBC) is a limit on the total amount of super that can be converted into an income stream.

All retirement products are valued and recorded against the cap – this cap and the impacts of exceeding it are managed by the ATO.

The general TBC is indexed by the ATO each year, and may be increased in future financial years. For the 2023–24 financial year the general TBC is $1.9 million*.

We explain this in more detail in the Indexation of the Transfer Balance Cap section.

*For individuals who transfer super to the retirement phase for the first time on or after 1 July 2023, the general TBC will be your personal TBC. Otherwise, you’ll have a personal TBC between $1.6 and $1.9 million depending on your circumstances. See Indexation of the Transfer Balance Cap for more detail.

Depending on your circumstances, you may have a personal TBC that is different to the general TBC. The balance of your transfer balance account will be used by the ATO to determine whether you’ve reached your personal TBC.

Your personal TBC will depend on the amount of super you transfer into the retirement phase, and when you do this. See Indexation of the TBC for more information.

Usually, if the total of your retirement products being transferred into the retirement phase are valued at more than your personal TBC, you’re required to commute a portion of your pension to a lump sum to bring the value of your pension(s) under your personal TBC. You’ll pay tax on the notional earnings that accrue on any excess transfer balance amounts.

However, CSC pensions – which are classed as capped defined benefit income streams – are not subject to this requirement. Instead, the concessional tax treatment applied to your pension will be restricted (we explain this in more detail further on).

If your pension is less than the defined benefit income cap (also explained later) and you don’t have any other retirement products, it’s unlikely you’ll be impacted by the TBC. However, you should keep the TBC in mind in case your circumstances change in future.

Note: Your TBC is not the same as your Total Super Balance (TSB).

Your TSB is used to determine your eligibility for the contribution caps, government co-contributions and tax offsets.

For more information about your TSB, visit the ATO website or contact your financial adviser.

How does the Transfer Balance Cap work?

When you first start a super pension or other retirement product, a Transfer Balance Account (TBA) will be set up on your behalf. If you were already in receipt of a pension on 1 July 2017, when the TBC was first introduced, your TBA was established on this date.

What is a Transfer Balance Account (TBA)?

Your TBA is a transactional summary managed by the ATO. It records the values of all your retirement phase products, using a system of credits and debits. A credit increases the balance of your TBA, while a debit decreases the balance.

Your pension is “valued” by your super fund(s) in accordance with ATO requirements, and this value is reported against your TBA as a credit. We’ll report a credit to the ATO when your pension commences. If your pension entitlement is permanently reduced, depending on your circumstances, we may report a debit to reflect the reduction.

If you’re in receipt of another retirement product outside of CSS, DFRDB, MilitarySuper or PSS, the TBA credit calculated for that product may reflect a lump sum value that is invested or can be commuted or withdrawn. However, this is not the case for CSC’s defined benefit schemes. Your pension is drawn from consolidated revenue, which means the credit calculated in respect of your pension is a notional value. It doesn’t represent a lump sum that you can access in addition to (or in lieu of) your fortnightly pension payments.

Transactions applied to your Transfer Balance Account (TBA)

Here is a summary of the transactions that may or may not be applied to your TBA. This is not an exhaustive list. Please visit the ATO website for more detail.

Credits

The following items are classed as TBC credits:

The value of an existing pension entitlement on 1 July 2017
The value of a new pension entitlement that commenced after 1 July 2017
Notional earnings that accrue on excess transfer balance amounts (not applicable to CSS, DFRDB, MilitarySuper or PSS).

The following are not classed as TBC credits:

Positive growth (such as pension indexing) on amounts transferred into the retirement phase
Structured settlements or personal injury payouts paid into a retirement phase account.

Debits

The following items are classed as TBC debits:

Permanent reductions in pension entitlements, such as family law splits
Commutations / lump sum withdrawals (not applicable to CSS, MilitarySuper or PSS)
Amounts rolled back into the accumulation phase (not applicable to CSS, DFRDB, MilitarySuper or PSS)
Anomalous situations, such as fraud or bankruptcy, as approved by the Commissioner for Taxation.

The most common debits reported by CSC are:

Reductions in spouse pensions when children are no longer eligible
Reductions in spouse pensions following the first seven pays

We explain both of these in more detail below.

The following items are not classed as TBC debits:

Negative growth (i.e. earnings rates or interest of less than 0%) on amounts transferred into the retirement phase
Draw down amounts (i.e. regular pension payments).

We’ll calculate and report a credit on your behalf when your CSC pension commences. If the value of your pension is more than the general TBC, you won’t be permitted to remove any amount in excess of the cap, or purchase additional retirement products outside of the defined benefit environment.

If your pension is valued at or below the general TBC, the value will need to be taken into account for any other retirement products you have or may plan to purchase.

Example: Andrew
Example: Jo

Andrew's new pension is valued at less than the general transfer balance cap

In August 2023, Andrew commences receiving a MilitarySuper age retirement pension that has been valued at $1.1 million.

He is 55 years old, and has not previously claimed any other retirement products.

Andrew has $800,000 remaining cap space for other retirement products.

Jo's new pension is valued at more than the general transfer balance cap

In July 2023, Jo commences receiving a PSS pension that has been valued at $2.1 million. She has used all of her cap and can’t purchase any additional retirement products outside of the defined benefit environment.

Because Jo’s pension is a capped defined benefit income stream, she is not required or able to commute a portion of her pension to a lump sum to bring the value of her pension under the TBC.

However, the concessional tax treatment applied to Jo’s pension will be restricted (more on this later).

Answering your questions

How is my pension valued?

Initially, pensions are valued by multiplying the ‘annual entitlement’ by a factor of 16. Your annual entitlement is calculated by multiplying your daily rate of pension (i.e. fortnightly pension / 14) by 365. Your annual entitlement will be based on the first regular pension payment you receive when your entitlement commences. For existing pensioners on 1 July 2017, the pension payment made on 6 July 2017 was used as the basis of this calculation.

Pension value = fortnightly pension ÷ 14 ×365 ×16

Example:
Julie claimed a pension on 1 October 2023. Her first regular fortnightly pension payment was $3,116.44 gross. A value of $1.3 million ($3,116.44 / 14 x 365 x 16) was reported as a credit against Julie’s Transfer Balance Account.

Generally, a valuation will only be performed once, and this valuation will be reported to the ATO as a credit. However, a value may be recalculated if retrospective changes are made that affect your original valuation. If your pension entitlement is permanently reduced in future, we’ll report a debit to reflect this change.

Pensions that are not classed as capped defined benefit income streams will be valued differently. You’ll need to contact the ATO or your super fund for more information if you’re in receipt of other products such as an account based pension, term pension, or market-linked pension.

If your pension includes both an indexed and non-indexed pension, your combined pension amount will be used for the purposes of TBC.

What if my pension is valued at more than the general Transfer Balance Cap?

The ATO sets a limit on the tax concessions you can receive for capped defined benefit income streams – such as CSC pensions. This cap, known as the defined benefit income cap, is also reviewed annually. For the 2023–24 financial year this cap is $118,750.

The TBC and defined benefit income cap won’t affect your benefit options. Even if your pension entitlement is over the defined benefit income cap, you’ll still be able to claim the full pension —you won’t be required to claim a lesser amount or remove any excess. However, your concessional tax treatment will be restricted from age 60 (for more information about tax and your pension see How will my pension be taxed?).

The TBC is a single lifetime cap applied to an individual, and applies collectively to all retirement products you hold. The value of your pension may affect your claim options or tax treatment of any other super products you hold outside of CSS, DFRDB, MilitarySuper or PSS. If you have more than one retirement product, each product will be valued and reported to the ATO by the super fund.

From its inception on 1 July 2017 to 30 June 2021, the defined benefit income cap was $100,000. It is reviewed each financial year, and may be indexed, just like the transfer balance cap. Even if your personal TBC remains at $1.6 million, the new defined benefit income cap will apply to you.

Will changes to my pension amount be reported against my cap?

Unless we re-calculate the original value of your pension, we’ll only report it once.

If your pension grows due to indexing after the value is calculated, we won’t report further credits. However, if there’s a permanent reduction in your pension, you may be eligible to have a debit reported to reflect the change (see the next question – Does the TBC apply to reversionary pensions? – for more detail).

Depending on your scheme, some or all of your pension may be indexed in line with increases in the Consumer Price Index, Male Total Average Weekly Earnings or Living Cost Index. These increases are not reported against your TBA.

Does the TBC apply to reversionary pensions?

Pensions paid to eligible dependants of a deceased member (‘reversionary’ pensions) are included under the TBC. However, the treatment of these pensions may vary depending on who the pension is paid to, and whether or not the member was in receipt of a pension before they died.

Benefits paid to a spouse and associated children (where the member did not claim a pension before they died)

The pension paid to the spouse – which may include a portion paid in respect of a child – will be used to calculate a TBC credit that will be reported against the TBA of the spouse. When the pension is reduced as each child ceases to be eligible, we’ll report a debit on behalf of the spouse.

Example: James was a contributing member when he passed away in November 2019. His spouse, Lesley, is found eligible under the scheme rules and is entitled to a reversionary pension of $1,780 per fortnight. This amount includes a spouse portion of $1,340 and an additional $440 ($220 each) in respect of their two children.

The child portion of the benefit will cease when each child is no longer classed as a dependent child under the scheme rules, so this portion of Lesley’s benefit is temporary.

The TBC credit reported against Lesley’s TBA will include the child portions and would be $742,514.29 ($1,780 / 14 x 365 x 16). Lesley’s eldest child finished their studies in June 2020 and ceased to be eligible. A debit of $91,771.43^*was reported to reflect the reduction in Lesley’s pension.

^{*This figure is for illustrative purposes only.}

Benefits paid to children in their own right

If a child is paid a reversionary pension in their own right^*, they’ll have a modified personal TBC. The TBA is usually temporary in this situation (they’ll get their own TBA when they retire).

The value of their TBC will depend on a number of factors and will be determined by the ATO. We’ll still calculate a TBC credit by multiplying the annual entitlement by a factor of 16.

_{*This may occur if there is no eligible spouse, the child is not living with the eligible spouse, or the deceased was a member of DFRDB (even if there’s an eligible spouse).}

Benefits paid to a spouse following the death of a pensioner

If the member was receiving a pension before they died, the first seven pension payments made to a spouse will usually be based on the member’s pension rate, rather than the spouse rate.

The TBC credit will be based on the first pension payment, which means the TBC credit calculated and reported against the spouse’s TBA will be based on the member’s pension rate at the time of their death. However, this credit will usually not be applied to the account until 12 months after the date of death of the original pension recipient.

A debit will be reported and applied immediately after the spouse’s pension reverts to the lesser rate, after the first seven payments have been paid. This means the debit will appear on the account before the credit.

Example: Bill is receiving a pension of $1,000 gross per fortnight when he passes away in August 2017.

His spouse, Mary, is found to be an eligible spouse, and under the relevant scheme rules is entitled to 67% of Bill’s pension rate, or $670 gross per fortnight.

When Mary first starts to receive her reversionary pension, she is entitled to seven fortnights of pension at Bill’s rate of $1,000. As the TBC credit is based on the amount of the first pension payment, Mary’s TBC credit will be $417,142.86 ($1,000 / 14 x 365 x 16).

After seven fortnights, Mary’s pension entitlement will revert to $670 per fortnight. A debit of $137,657.14^* will be reported to reflect the reduction in her pension.

_{*The debit represents the difference in fortnightly pension of $330 / 14 x 365 x 16. This example does not include factors that would alter the calculation such as pension indexing, which occurs twice yearly (see ‘Will changes to my pension amount be reported against my cap?’).}

What happens if I have a Family Law split?

The treatment of your pension under the TBC will depend on whether the family law split occurs in the growth or payment phase. If the split is applied in the growth phase, both the member and non-member spouse entitlement will be subject to the standard rules when they claim their benefit – that is, if they claim their benefit as a pension, the annualised entitlement they receive will be multiplied by 16 and reported against their own individual TBAs.

If the split is applied in the payment phase, a series of debits and credits will be applied to the TBA of both the member and non-member spouse to reflect the entitlement.

Either the member spouse or non-member spouse will need to complete a Transfer balance event notification form, available from the ATO. You can contact us to obtain the value of the pension at the date of the payment split.

Indexation of the Transfer Balance Cap

The general TBC is reviewed each financial year, and is indexed in line with CPI in $100,000 increments. On 1 July 2023 it increased to $1.9 million. From this date, individuals may have a personal TBC of between $1.6 and $1.9 million, depending on their circumstances. This is explained in the table below.

Circumstances	Effect of indexation on personal TBC
You started your first retirement phase income stream on or after 1 July 2023	Your personal TBC will be $1.9 million
You had a transfer balance account before 1 July 2023 which never reached the general TBC in effect at any time before that date	Your personal TBC will be proportionally^* indexed, resulting in a new TBC between $1.6 and $1.9 million
You had a transfer balance account before 1 July 2023 which reached the general TBC in effect at that time	Your personal TBC will remain the same
You were a child death benefit beneficiary before 1 July 2023 and only receive a child death benefit income stream	Your personal TBC related to the death benefit is made up of one or more cap increments.^** These increments won’t change.
* Proportional indexation is explained in more detail on the ATO website ** Increments are explained on the ATO website

When the general TBC is indexed, the defined benefit income cap is also increased. This means if you’re eligible for the 10% pension tax offset, the amount you can claim may also increase. We explain this more in the next section about how your pension is taxed.

How will my pension be taxed?

The defined benefit income cap restricts the tax concessions and the amount of tax-free income you can receive from defined benefit income streams. Concessional tax treatment will be restricted if your pension is above the defined benefit income cap and:

You’re over age 60 or
You’re in receipt of a reversionary pension that has over-60 tax treatment applied.

If you don’t meet any of the criteria above, your pension tax will be unaffected by the TBC.

You’ll need to inform us if you need additional tax withheld from your pension to meet your tax liabilities. You’ll need to nominate an amount or rate of additional tax to be withheld for each entitlement administered by CSC – we can’t calculate this for you.

Depending on your circumstances, your pension may be paid from a taxed and / or untaxed source. If you haven't claimed your benefit, you can obtain a benefit estimate which will provide an estimated breakdown of the tax components. If you're already receiving your pension you can check your pension entitlement letter or contact us for a breakdown.

Treatment applied to taxed pensions

50% of any amount of a taxed pension that is over the defined benefit income cap ($118,750 p.a. or $4,567.31 per fortnight) will be included in your assessable income. This includes both the tax-free and taxable taxed components of your pension.

Treatment applied to untaxed pensions

Any amount of an untaxed pension (the taxable untaxed component) over the defined benefit income cap ($118,750 p.a. or $4,567.31 per fortnight) will be taxed at full marginal rates.

The 10% offset will be limited to $11,875 per financial year ($456.73 per fortnight).

Treatment applied to hybrid pensions

For pensions that contain both a taxed and untaxed element, a ‘stacking’ approach is applied.

The untaxed component is stacked on top of the taxed component before determining the tax treatment to be applied. The Tax Free and Taxable Taxed components will remain tax free if they’re under the defined benefit income cap.

If the Tax Free and Taxable Taxed components combined are greater than the cap, only the cap amount will be tax free.

While the entire Taxable Untaxed component will be assessable income, the availability of the 10% offset will be determined by the defined benefit income cap.

Where can I get more information?

Our role is to calculate and report appropriate credits and debits to the ATO. If you have any questions about the impact the TBC will have on your super entitlement, or the amounts that have been or will be reported by CSC on your behalf, please contact us.

It’s important to note, we can’t advise you of the balance of your TBA, or how much cap space you have remaining. You can check the total balance of all your super assets in your ATO record linked to your myGov account.