The TBC is a lifetime limit on how much super you can transfer into pension phase, where earnings are completely tax-free. Once in pension phase, your super earns 0% tax. In accumulation phase, it's taxed at 15%. The TBC prevents unlimited tax-free earnings.
Indexed in $100K increments based on CPI. Doesn't increase every year automatically.
Critical mistake: If you've already used some of your TBC, your remaining cap doesn't increase by the full indexation amount. It increases proportionally.
If you don't need income yet, delay starting your pension. Each indexation increase gives you a higher cap to work with. Waiting from 2021 ($1.7M) to 2025 ($2.0M) gives you an extra $300K capacity.
Use both spouse's caps. If one spouse has $3M super and the other has $500K, rebalance to $2M each. Both can be in pension phase. Total: $4M tax-free vs $2M.
Don't put everything into pension phase if you're close to the cap. Keep some in accumulation. You can gradually move more into pension as you draw down the balance.
Strong returns can push your pension balance above your TBC. You'll need to commute excess back to accumulation. Set alerts to track this.
If you have a Transition to Retirement Income Stream (TRIS), timing the conversion to Account-Based Pension matters. Do it when your balance is lower to preserve more cap space.
Death benefit pensions received from a spouse generally don't count against your TBC (with exceptions). This can allow more in pension phase than expected.
You'll receive a determination notice from the ATO. You must commute the excess back to accumulation phase within 60 days. The excess amount is also taxed at your marginal rate (not 15%) for the period it was over. Penalties apply if you don't fix it.