Do I pay tax on my Superannuation after I Turn 60?

There are four broad areas of superannuation tax to consider:

1. Tax on contributions going into super
2. Tax on pension payments you receive
3. Tax on lump-sum withdrawals
4. Tax on investment earnings inside your account

Turning 60 affects some of these areas, but not all of them.  The most important point to remember is this: age 60 does not automatically make your entire super account tax-free.

Tax on Contributions

Let’s begin with money going into super.

Concessional contributions generally include:

• Employer Superannuation Guarantee contributions
• Salary-sacrifice contributions
• Personal contributions for which you claim a tax deduction

These contributions are generally taxed at 15% when they enter your super fund.

If your income and concessional contributions for Division 293 purposes exceed $250,000, an additional 15% tax may apply to some or all of those contributions. The calculation is more nuanced than simply taxing every contribution at 30%, so it is worth checking your position carefully. Click here to read how the ATO describes Division 293 on concessional contributions by high-income earners.

Does turning 60 change this? No.  Concessional contributions can still be subject to contributions tax, regardless of your age.

That does not necessarily make contributing to super a poor decision. If your personal marginal tax rate is higher than the rate applying inside super, concessional contributions may still produce a meaningful tax benefit.

The right question is not simply, “Will I pay contributions tax?”

The better question is, “Will contributing to super leave me better off overall, once tax, contribution limits and access to the money are considered?”.

Tax on Pension Payments

Once you can access your super, you may choose to use some or all of it to commence a pension.

This could be:

• A transition-to-retirement pension while you are still working
• An account-based pension after retirement
• A defined-benefit pension
• An income stream commenced because of permanent incapacity

A pension payment can contain:

• A tax-free component
• A taxable component with a taxed element
• A taxable component with an untaxed element
  
  

The tax-free component is generally received tax-free, regardless of your age.

For most people with a standard taxed super fund, pension payments from age 60 are also received tax-free.  However, this is where you need to be careful.

Some benefits include an untaxed element. This can occur with certain public-sector and defined-benefit arrangements. Different tax rules may continue to apply after age 60.

This is particularly relevant if you receive a defined-benefit pension or hold benefits through a public-sector or military superannuation scheme. Do not assume your entire payment is tax-free simply because you have turned 60.

Capped defined-benefit income streams can also be subject to additional rules.

Your annual pension statement or PAYG payment summary may show whether your benefit includes an untaxed element. If the position is unclear, ask the fund to confirm the tax components in writing.

The general rule is straightforward: payments from a taxed-source account-based pension are usually tax-free from age 60, but defined-benefit and untaxed-source pensions need to be checked separately. Click here for guidance from the ATO on how super income streams are taxed.

Tax on Lump-Sum Withdrawals

A lump-sum withdrawal can also contain a tax-free component and a taxable component.

For most people aged 60 or over receiving an ordinary member benefit from a taxed super fund, the taxed element and tax-free component are received tax-free. Different rules can apply to untaxed elements and death benefits. However, the same warning applies: an untaxed element may still be assessable.

This is another reason to confirm the components of your benefit before making a large withdrawal particularly if your super comes from a government, public-sector, defined-benefit or military arrangement.

Tax is only one part of this decision.

Before withdrawing a large amount, also consider:

• What the money will be used for
• Whether you may need it later
• Whether the withdrawal can be recontributed
• The applicable contribution limits
• How the withdrawal could affect Centrelink
• What happens to the money once it leaves super
  
  

A tax-free withdrawal is not automatically a good withdrawal.

Once money leaves super, it may lose the tax concessions, investment structure and estate-planning treatment that previously applied to it.

For taxed elements, withdrawals made on or after age 60 are generally tax-free; untaxed elements can still be assessable.

Tax on Investment Earnings

This is one of the most common areas of confusion.  Turning 60 does not automatically make the investment earnings inside your super fund tax-free.

What matters is whether your super remains in accumulation or has moved into retirement phase.

While Your Super Is in Accumulation

An accumulation account is generally where your super is held while you are working and receiving contributions.

Investment income inside the fund such as interest, dividends and rent, is generally taxed at up to 15%.

Realised capital gains are also generally taxed at up to 15%. If the fund has held the investment for longer than 12 months, the one-third capital-gains discount can reduce the effective tax rate to 10%.

These rules generally apply whether you are 40, 60 or 70.  Your age is not what makes the earnings tax-free. The account’s tax status is what matters.

When Your Super Moves Into Retirement Phase

Once you have met a relevant condition of release and move money into a retirement-phase pension, the investment earnings supporting that pension may become exempt from tax within the fund.

Limits and pension requirements apply, including the transfer balance cap and minimum annual pension payments.

This means moving money into retirement phase can make a meaningful difference—but it should not be done automatically.

You still need to consider:

• How much income you need
• How much flexibility you want
• Whether you will continue contributing
• Your estate-planning position
• Centrelink consequences
• Whether you have met a full condition of release with no cashing restrictions

Transition-to-Retirement Pensions

A transition-to-retirement pension is different.

If you are still working and have not met a full condition of release with no cashing restrictions, the investment earnings supporting the pension are generally taxed in the same way as accumulation earnings.

The pension payments may be tax-free once you are 60, but the investment earnings inside the account may still be taxed.  That is an important distinction.

A transition-to-retirement pension generally enters retirement phase when you turn 65, or when the fund is notified that you have satisfied another applicable condition of release with no cashing restrictions

The ATO confirms that earnings supporting a transition-to-retirement income stream that is not in retirement phase remain taxable at 15%.