For many self-managed super fund members, the question is no longer whether retirement-phase Earnings are tax-free — they are — but how much of a balance can actually get there, and what to do with the rest. In 2026–27, three moving parts shape that structuring decision: a transfer balance cap indexed to $2.1 million, a new Division 296 tax on very large balances, and the way a couple’s balances interact across two members. This is not the plain pension-versus-accumulation explainer; it is the structuring layer that sits on top of it. Understanding why some money deliberately stays in accumulation, and how trustees think about splitting balances, is central to SMSF tax planning this year.

 

The tax gap that drives the decision

The starting point is the familiar gap. Accumulation earnings in a complying SMSF are taxed at 15%, with an effective 10% on Long-term capital gains after the one-third discount. Retirement-phase earnings are Exempt Current Pension Income (ECPI) at 0%, and pension payments are tax-free from age 60.

If that were the whole story, every member would move everything into pension phase. They cannot — and that constraint is what makes structuring a genuine consideration rather than a formality.

 

Why the transfer balance cap forces some money to stay put

The transfer balance cap limits how much each person can move into the tax-free retirement phase across all their super. It was $2 million in 2025–26 and was indexed to $2.1 million from 1 July 2026.

The cap is a lifetime limit on transfers into retirement phase, not a limit on how large a pension can grow afterwards. Once a member has used their personal cap, any additional balance — including new contributions and strong Investment growth beyond the cap — generally has to remain in accumulation, taxed at up to 15%.

Two points often catch trustees out. First, indexation is proportional: only a member who had never started a retirement-phase pension before 1 July 2026 gets the full $2.1 million. Someone who already used part of their cap receives a smaller top-up. Second, you cannot add contributions to an existing account-based pension; new money goes to accumulation, and starting a further pension later is subject to the remaining cap.

 

Where Division 296 enters the picture

From 1 July 2026, Division 296 is law. It applies to individuals whose total super balance exceeds $3 million, adding an extra 15% on earnings attributable to the portion of the balance above $3 million (and a further 10% — an extra 25% in total — above $10 million).

This changes the accumulation calculus for large balances. Historically, leaving surplus money in accumulation at 15% was simply the cost of exceeding the transfer balance cap. Now, for a total super balance above $3 million, earnings attributable to the excess can face a combined effect commentators describe as roughly 30%. Crucially, Division 296 is measured on total super balance across all a person’s funds and applies whether the money is in accumulation or pension phase — so moving a balance into retirement phase does not sidestep it. Because the extra tax is calculated on realised earnings and the thresholds are indexed, its bite depends on actual investment outcomes each year.

 

How couples may think about balances across two members

Because the transfer balance cap and the Division 296 threshold apply per individual, the way a balance is split between two members can matter. A couple with two members each below the relevant thresholds has more combined room in the tax-free retirement phase, and more combined headroom before Division 296 applies, than one member holding the lot.

Strategies some funds consider over time include contribution splitting between spouses, directing future contributions to the member with the lower balance, and the recontribution of amounts within the contribution caps. These are governed by the concessional cap of $32,500 and non-concessional cap of $130,000 in 2026–27, and non-concessional contributions are only available where the member’s total super balance at the prior 30 June is below $2.1 million. None of this is a recommendation; it simply illustrates why per-member structuring is discussed.

 

A hypothetical worked example

Consider a hypothetical couple, Ravi and Joanne, each aged 63 and each an SMSF member. This example is illustrative only.

Suppose Ravi has $2.6 million and Joanne has $1.4 million. Ravi can move up to his personal cap of $2.1 million into a retirement-phase pension; the remaining $500,000 stays in accumulation and is taxed at up to 15%. Joanne’s entire $1.4 million can support a pension within her cap.

Had all $4 million sat with one member, only $2.1 million could reach the tax-free phase and $1.9 million would remain in accumulation — and that single member’s total super balance would exceed $3 million, bringing Division 296 into play. Split across two members, neither exceeds $3 million. The example shows the mechanism, not advice.

 

What SMSF trustees need to know

Structuring in 2026 is about sequencing and record-keeping, not a single switch. Trustees weighing these considerations generally watch: each member’s personal transfer balance cap and how much remains; whether any member’s total super balance is near $3 million for Division 296; minimum drawdowns (4% under 65, 5% for 65–74) that keep a pension in retirement phase; and the contribution caps that govern how balances can be rebalanced over time. Actuarial certificates are typically needed where a fund runs accumulation and pension accounts together.

 

Key Takeaway

The 0% retirement-phase rate is capped by the transfer balance cap ($2.1 million from 1 July 2026), so balances above it stay in accumulation at up to 15%. From 1 July 2026, Division 296 adds tax on earnings attributable to a total super balance above $3 million, regardless of phase. Because both limits apply per individual, how a couple’s balances are arranged across two members affects how much can reach the tax-free phase and when Division 296 applies.