How Super Pensions Can Keep Growing

The transfer balance cap is the maximum amount that can be transferred from the accumulation phase of super into the tax-free retirement pension phase. When the cap was introduced on 1 July 2017, it was set at $1.6 million. Since then, it has increased several times through indexation and currently sits at $2 million for people commencing a retirement income stream for the first time from 1 July 2025.

The important point is that the cap applies to the amount transferred into the pension phase, not to the account’s value years later. Once money has entered the pension phase within the allowable cap, there is no requirement for future investment growth to be transferred back into accumulation simply because the balance has increased.

James recently shared the story of one of the largest minimum pension payments he has seen in many years. Back in 2017, the SMSF was worth approximately $4 million. Like many funds at the time, it needed restructuring to comply with the newly introduced transfer balance cap rules.

One member commenced a pension using the maximum permitted balance, while another member split their benefits between the pension and accumulation accounts. Soon afterwards, one of the fund’s commercial properties attracted an exceptionally motivated buyer.
Although the property had been professionally valued only a year earlier, the purchaser paid approximately $1.1 million more than its previous valuation. Combined with strong returns from the share market over the following years, the fund experienced extraordinary investment growth. By the end of the 2025 financial year, the SMSF had grown to more than $8 million, despite paying well over $1 million in pension payments.

One pension account alone had increased from an original transfer balance of $1.6 million to almost $2.8 million.

This is where many people become confused. The transfer balance cap limits how much you can initially move into the pension phase, but it does not limit how much that pension account can grow afterwards. If the investments held within the pension account perform strongly, all future earnings and capital growth remain inside that pension account.

There is no rule requiring those investment gains to be transferred back into accumulation simply because the balance exceeds the original cap. In fact, allowing investment earnings to continue compounding in the tax-free pension environment is one of the major long-term benefits of superannuation in the retirement phase.

Once you commence an account-based pension, the Government requires you to withdraw a minimum percentage of your pension balance each financial year. The percentage depends on your age. For Australians aged:

• 65 to 74: 5%
• 75 to 79: 6%
• 80 to 84: 7%
• 85 to 89: 9%
• 90 to 94: 11%
• 95 and over: 14%

In James’s case, the members were in their late 80s, meaning they were required to withdraw 9% of their pension balances. With pension accounts totalling several million dollars, the required minimum pension for the year came to approximately $471,000. While that figure may sound extraordinary, it reflected their age and decades of successful investment growth.

One of the more interesting aspects of this example is that despite making substantial pension payments every year, the fund continued to grow. Strong long-term investment returns, including periods where the SMSF achieved returns of around 25% in a financial year, meant investment earnings comfortably exceeded the required pension withdrawals.

This demonstrates an important principle for retirees. While pension payments reduce the account balance, a well-diversified investment portfolio with an appropriate long-term strategy can continue generating meaningful growth, even while providing regular retirement income.

Cases like this are relatively uncommon because they combine significant starting balances, exceptional investment performance and many years of disciplined management. However, they do illustrate an important lesson.

Understanding how the transfer balance cap works, and just as importantly, how it doesn’t work, can prevent costly misunderstandings when planning retirement. Many Australians assume their pension account can never exceed the transfer balance cap. In reality, the cap limits the amount transferred into the retirement phase, not the value it may eventually reach through successful investing.

At First Financial, we help clients understand how superannuation legislation applies to their individual circumstances, enabling them to make informed decisions that support both their retirement income and long-term financial security.

Disclaimer: General advice only. Superannuation strategies and pension rules are complex and may not be suitable for everyone. Before implementing any strategy, seek personalised financial advice that considers your individual circumstances.

The team at First Financial comprises financial experts who help hundreds of Australians retire well and make informed, intelligent financial decisions. We cover everything from retirement and financial advice, investment and wealth management, superannuation and SMSF, insurance, tax, aged care, legal and lending services.

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