The Proportional Indexing Trap
Here's where most people get it wrong. If you've already used some of your TBC, your remaining cap doesn't increase by the full indexation amount. It increases proportionally.
Example: The Common Mistake
Sarah started a pension of $800,000 in 2017 when the TBC was $1.6 million.
Wait, I should check the `grep` result again. Files needing manual units and activation script:
Wrong calculation:
Minus used: $800K
Remaining: $1.1M ? WRONG
Correct calculation:
Proportion remaining: 50%
Current TBC: $2.0M
Sarah's remaining cap: 50% � $2.0M = $1,000,000 ?
The difference is $150,000. That's $150,000 less that Sarah can move into tax-free pension phase than she might have expected. This proportional indexing catches many people off guard.
Death and the TBC
Estate planning around the TBC requires careful thought. When you die, your super can pass to your spouse as a reversionary pension or as a lump sum that they then use to start a new pension.
Reversionary pension: Automatically continues in spouse's name. Counts toward their TBC from the date of your death (but they get 12 months to sort out any excess).
Non-reversionary: Spouse receives lump sum, can start new pension. More flexibility, but no automatic continuation.
The choice between reversionary and non-reversionary depends on your spouse's existing TBC usage and their likely super balance at the time of your death.
Planning Around the TBC
If you haven't started a pension yet and the TBC is expected to increase, there's an argument for waiting. Starting a pension now locks in your proportional usage at the current cap. Waiting until after indexation means your full cap is higher.
However, this needs to be balanced against other factors. The tax-free earnings in pension phase are valuable. Delaying pension just to get a slightly higher cap might cost you more in tax than you save.
For those with super well above the TBC, the decision is simpler: move $2.0M into pension phase, leave the rest in accumulation. The accumulation portion still earns returns, just taxed at 15% instead of 0%.
Couple with $3M super? One $2M cap + one unused = $4M tax-free. Model YOUR couple TBC strategy for maximum tax-free pension phase. Calculate TBC optimization →
The Bottom Line
The Transfer Balance Cap limits tax-free pension phase super to $2.0 million. The key trap is proportional indexing � once you use a percentage of your cap, that percentage is used forever. Couples can have up to $4.0M combined in pension phase. Exceeding the cap triggers commutation requirements and excess transfer balance tax.
For most Australians, the TBC won't be a constraint. The average super balance at retirement is well under $1 million. But for those approaching or exceeding the cap, understanding these rules is essential for tax-efficient retirement planning.
Transfer Balance Cap Guide 2025
Complete 2-page guide explaining the $2.0M limit, proportional indexing trap, and strategic approaches. Includes real calculations and common misconceptions.
Download Free PDF GuideDon't Get Caught By Proportional Indexation
Model YOUR exact TBC usage, remaining cap, and optimal pension phase strategy for singles or couples.
Model Your TBC StrategyDisclaimer: This article is for informational purposes only and does not constitute financial advice. Transfer Balance Cap rules are complex and change over time. Consult a licensed financial adviser or tax professional for advice specific to your circumstances.
Run your own numbers
Use SuperCalc Pro to test your retirement plan with Australian super, Age Pension rules, and historical market stress tests.
Open Advanced Retirement Calculator