Defined Benefit Income Cap Calculator
The 2026-27 defined benefit income cap is $131,250 — the general transfer balance cap of $2.1 million divided by 16.
Check a capped defined benefit income stream against the cap for any income year since 2017-18, and see what exceeding it actually does: 50% of the excess added to your assessable income on taxed or tax-free income, or a reduced 10% tax offset on an untaxed element. An estimate only — not tax advice.
An estimate of the tax effect of the cap. Not tax advice — check your PAYG payment summary or ask your fund or tax agent.
📐 How it worksWhat the defined benefit income cap is, and how it's set
The 2026-27 cap is $131,250
The defined benefit income cap is the annual amount of capped defined benefit income you can receive before extra tax consequences apply. For the 2026-27 income year it is $131,250.
The formula: general transfer balance cap ÷ 16
There is no separate indexation schedule for the income cap. It is simply the general transfer balance cap divided by 16. The general transfer balance cap indexed from $2.0 million to $2.1 million on 1 July 2026, and $2,100,000 ÷ 16 = $131,250.
Because the general cap indexes in $100,000 steps in line with CPI, every step lifts the income cap by exactly $6,250. That is why the cap moves in the odd-looking increments below rather than round numbers. Knowing the formula means you can work out the cap for any future year yourself the moment the ATO announces the new transfer balance cap.
What counts as capped defined benefit income
The cap applies to capped defined benefit income streams — broadly, lifetime pensions and annuities and certain life-expectancy and market-linked income streams that were in place before the transfer balance cap rules commenced on 1 July 2017. It is assessed against the total you receive across all such income streams in the income year, not per fund.
The rules described on this page apply where you are 60 or over, or where you receive a death benefit income stream and the deceased was 60 or over. Under-60 recipients, child recipients and structured settlement income streams follow different rules — this calculator does not model those cases.
📅 Cap by yearThe defined benefit income cap for every year since 2017-18
The cap has risen four times since the rules began on 1 July 2017. If you are amending an earlier return or checking a past assessment, use the cap for that income year — not the current one.
| Income year | General transfer balance cap | Defined benefit income cap |
|---|---|---|
| 2017-18 to 2020-21 | $1.6 million | $100,000 |
| 2021-22 to 2022-23 | $1.7 million | $106,250 |
| 2023-24 to 2024-25 | $1.9 million | $118,750 |
| 2025-26 | $2.0 million | $125,000 |
| 2026-27 | $2.1 million | $131,250 |
Each $100,000 step in the general transfer balance cap adds $6,250 to the income cap. Note the general cap did not move in 2018-19, 2019-20, 2020-21 or 2022-23, which is why several income years share a cap.
Indexation can pull you back under
Because the cap rises with the general transfer balance cap while many defined benefit pensions index at CPI or a fixed rate, some people who were slightly over the cap in one year fall back under it the next without changing anything. The cap rose $6,250 on 1 July 2026. It is worth rechecking each income year rather than assuming last year's answer still holds.
🧾 Tax treatmentWhat happens when you go over the cap
Exceeding the cap does not trigger a penalty or a separate tax bill. It changes how your existing pension income is taxed — and the change depends entirely on which components your pension is made up of. Your fund's PAYG payment summary shows the split.
Taxed element and tax-free component: 50% of the excess becomes assessable
If your defined benefit income is a taxed element, a tax-free component, or both, then 50% of the amount above the cap is included in your assessable income and taxed at your marginal rate. The other half keeps its concessional treatment.
Worked example (2026-27). You receive $150,000 a year as a taxed element. The excess over the $131,250 cap is $18,750. Half of that — $9,375 — is added to your assessable income. At a 39% marginal rate (the 37% bracket plus the 2% Medicare levy) that is roughly $3,656 of extra tax for the year.
Untaxed element: the 10% tax offset is reduced
An untaxed element — what unfunded public-sector schemes such as CSS, PSS and State Super pay — is already fully assessable at your marginal rate, whether or not you exceed the cap. What changes is the tax offset. You would normally receive a 10% tax offset on the untaxed element from age 60. Exceed the cap and that offset is reduced by 10% of the excess, and it cannot fall below zero.
Worked example (2026-27). You receive $150,000 a year as an untaxed element. The excess is $18,750, so the offset reduction is 10% of that — $1,875. Your 10% offset falls from $15,000 to $13,125. That $1,875 of lost offset is the cost of being over the cap.
Under the cap: nothing changes
At or below the cap there is no additional assessable income and no reduction to the offset. On $120,000 of defined benefit income in 2026-27 you are $11,250 under the cap and your pension is taxed exactly as it always was.
Mixed streams
If your income includes both a taxed and an untaxed element, the excess is apportioned across the components. This calculator apportions it proportionally, which is exact for a single-component stream and indicative for a mixed one. For a mixed stream, cross-check against the ATO's own Defined benefit income cap tool and your PAYG payment summary, or ask your fund or tax agent.
👥 Who it affectsWho actually hits the defined benefit income cap
The cap only bites above roughly $131,000 a year of capped defined benefit income, so the group affected is small but concentrated:
- Long-serving members of unfunded public-sector schemes — the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) and the State Super schemes. These pay an untaxed element, so the cap shows up as a reduced 10% offset rather than extra assessable income.
- Judges and senior public servants on judicial or senior-executive pension arrangements, where final-salary multipliers can produce pensions well above the cap.
- Members of older corporate defined benefit funds that were closed to new members years ago but still pay generous lifetime pensions. These are usually funded, so the taxed-element rules apply.
- Reversionary and death benefit recipients, where the deceased was 60 or over — the cap applies to the recipient's income stream in the same way.
If you are under 60, a child recipient, or receiving a structured settlement income stream, different rules apply and the figures on this page will not describe your position.
What you can and can't do about it
Unlike an accumulation balance, a defined benefit pension generally cannot be reduced or restructured to get under the cap — the entitlement is set by the scheme rules. For most people the cap is a fact to plan around rather than something to manage. That said, the interaction with other income in the same year, deductions, and offsets is worth modelling with a tax agent, particularly in the year you retire or the year a reversionary pension starts.
❓ FAQFrequently asked questions
What is the defined benefit income cap for 2026-27?
The defined benefit income cap is $131,250 for the 2026-27 income year. It is set at the general transfer balance cap divided by 16, and the general cap indexed from $2.0 million to $2.1 million on 1 July 2026 — which lifted the income cap from $125,000 to $131,250. The cap applies to capped defined benefit income streams for people aged 60 and over, and to death benefit income streams where the deceased was 60 or over.
How is the defined benefit income cap calculated?
There is no separate indexation for the defined benefit income cap. It is simply the general transfer balance cap divided by 16. Because the general cap indexes in $100,000 steps in line with CPI, each step lifts the income cap by $6,250. That is why the figure moves in odd-looking increments: $100,000, then $106,250, $118,750, $125,000 and now $131,250.
What happens if my defined benefit income exceeds the cap?
It depends on the components. If the income is a taxed element or a tax-free component, 50% of the amount above the cap is added to your assessable income and taxed at your marginal rate. On $150,000 of taxed-element income in 2026-27 the excess is $18,750, so $9,375 is added to assessable income — roughly $3,656 of extra tax at a 39% marginal rate including the Medicare levy. If the income is an untaxed element, it stays fully assessable as normal but the 10% tax offset is reduced by 10% of the excess, and the offset cannot fall below zero.
Does the cap apply to untaxed element pensions like CSS and PSS?
Yes. Unfunded public-sector schemes such as CSS, PSS and State Super pay an untaxed element, and the cap applies to them — but the consequence is different. The untaxed element is fully assessable whether or not you exceed the cap. What changes is the 10% tax offset: it is reduced by 10% of the excess and cannot go below zero. On $150,000 of untaxed-element income in 2026-27 the offset falls from $15,000 to $13,125, so the real cost of being over the cap is the $1,875 of lost offset.
Who does the defined benefit income cap affect?
The cap only bites on capped defined benefit income above roughly $131,000 a year, so it affects a relatively small group: long-serving members of older public-sector schemes such as CSS, PSS and State Super, some judges and senior public servants, and members of older corporate defined benefit funds. It applies from age 60, or to a death benefit income stream where the deceased was 60 or over. Under-60 recipients, child recipients and structured settlement income streams follow different rules.