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According to the latest data from the Australian Bureau of Statistics (ABS) released yesterday, the Consumer Price Index (CPI) rose 0.2 per cent in the December 2024 quarter and 2.4 per cent annually.
While this may have broader implications for the economy, from a superannuation strategy perspective, this points to some favourable changes ahead.
TBC set to increase from 1 July 2025
The indexation of the General Transfer Balance Cap (TBC) is linked to movements in the CPI.
With yesterday’s release of the official December 2024 CPI number comes confirmation that the General TBC is set to increase to $2,000,000 from 1 July 2025.
This increase follows the previous increases which took place on 1 July 2021 (to $1,700,000) and 1 July 2023 (to $1,900,000).
While this increase will no doubt be welcomed by many, due to the proportional indexation that is applied to a member’s personal TBC, not everyone will benefit. And, even for those that will, the size of any increase to their actual personal TBC will potentially involve a complicated calculation – based broadly on how much (if any) they have previously used to commence a retirement phase pension account.
The biggest winners will be those who, on 1 July 2025, are yet to commence a retirement phase income stream. While the biggest losers will be those who, before 1 July 2025, have already fully utilised their personal TBC.
Contributions caps also set to benefit
Unlike the TBC, indexation of the contribution caps is linked to movements in wages (i.e. as measured by the AWOTE index).
While it is unlikely that we will see an increase to the contribution caps from 1 July 2025, a flow-on benefit of the increase to the General TBC is that it will also increase the point at which a member’s NCC cap is reduced to zero – and any NCC’s made become automatically excessive.
Currently, this occurs where an individual’s TSB at the end of the previous financial year exceeds $1.9 million. However, from 1 July 2025, this cut-off point will increase to $2,000,000.
Further, assuming the contribution caps remain unchanged for the 2025-26 financial year, there will also be a change to the thresholds at which the NCC bring-forward rules will apply.
Based on the current contribution caps, these NCC thresholds for 2025-26 are likely to be:
| Current | Maximum NCC (with bring-forward)* | From 1 July 2025 |
|---|---|---|
|
< $1,660,000 |
$360,000 |
< $1,760,000 |
|
$1,660,000 – <$1,780,000 |
$240,000 |
$1,760,000 – <$1,880,000 |
|
$1,780,000 – <$1,900,000 |
$120,000 |
$1,880,000 – <$2,000,000 |
|
$1,900,000 or more |
$0 |
$2,000,000 or more |
* Assuming the member is not already in a previously triggered bring-forward period
Advice opportunities
For some members, the spectre of calculating the level of indexation (if any) that they may benefit from might be a daunting prospect. For others, with the pending increase to the General TBC and the potential benefits that it may bring, it may be worthwhile considering the timing of new pension commencements.
Understanding the level of indexation (if any) that individuals can look forward to will help to identify potential strategy considerations that may be relevant to their circumstances – and potential pitfalls that may result in less than desirable outcomes.
For instance, member’s considering the commencement of their first retirement phase income stream, may consider deferring until 1 July 2025 to lock in a larger increase to their personal TBC.
Similarly, members currently receiving a Transition to Retirement Income Stream (TRIS) should remain vigilant and ensure that their TRIS doesn’t inadvertently convert to a retirement phase pension before 1 July 2025.
Needless to say, this change will also result in further complexity being added to the strategic decision-making for members contemplating NCCs. As such, careful consideration to the size and timing of any planned NCCs will also be vital to ensure the most optimal result can be achieved based on their circumstances.
Consider Sophie, who is 69 and had a Total Superannuation Balance (TSB) of $1.5 million on 30 June 2024.
Sophie could choose to make a NCC of $360,000 during the 2024-25 year, bringing her super balance to approximately $1.86 million to fund the start of a pension – within the current $1.9 million TBC.
Alternatively, she could contribute $120,000 during 2024-25, followed by an additional $360,000 NCC in July 2025 – by triggering the three-year NCC bring-forward rule in July 2025 when the TBC has increased to $2 million.
In doing so, Sophie maximises the amount of superannuation benefits that can be used to commence a pension in 2025-26 – utilising the indexed TBC of $2 million.
Of course, Sophie’s scenario is for illustrative purposes only as any potential earnings on her superannuation balance will also need to be factored in.
Want more strategies and insights?
While we’ve touched on some high-level impacts in today’s blog, you can be sure to learn more about some of the finer details of retirement planning strategies at the upcoming SMSF Association conference to be held in Melbourne next month.
Click here to secure your spot at the conference, in person or virtually!
Written by Fabian Bussoletti, Technical Manager, SMSF Association