Your tax guide to accessing your super over age 60

Once you reach age 60 it’s more straightforward, but you still need to meet a condition of release. At this age, common conditions of release include retiring from the workforce or starting a transition-to-retirement pension.

Withdrawing your super benefit after 60

A big attraction of taking your super benefit after age 60 is that for most people not only is your money free of any benefit payments tax, it’s also free of income tax if you take it as an income stream.

This means your super pension payments aren’t added to your assessable income if you’re still working, or have other sources of income.

Once you satisfy a condition of release and access your super savings, you have several options (or a mix of the options):

1. Leave some or all of your savings in your account

Even if you take a lump sum, most super funds are happy to continue looking after your remaining retirement savings. Many funds offer super pension accounts with a wide choice of investment options. If you are satisfied with your current super fund, this may be a good option to consider.

2. Withdraw a lump sum

This is a single payment that withdraws some or all of your super. Taking a lump sum means the money is no longer within the super system, so if you invest it, any return on your investment will not be taxed as super savings.

This means the concessional tax rate of 15% on your investment earnings will no longer apply. Instead, your investment earnings outside the super system are taxed at your marginal tax rate, which can be as high as 45% (plus the Medicare levy).

3. Start an income stream (super pension or annuity)

If you decide to take an income stream, you receive a series of regular payments from your super fund. These must be paid at least annually and must meet minimum annual payment rules.

Lump sum or income stream: Which is better?

Unfortunately, there is no easy answer to this question, as it depends on your personal circumstances and age.

• If you are aged 60 or over and decide to take a lump sum, for most people all your lump sum benefits are tax-free.
• If you are aged 60 or over and decide to take a super pension, all your pension payments are tax-free unless you are a member of a small number of defined benefit super funds.

Limits on income stream amounts you can access

There are some important rules governing super income streams you need to bear in mind:

1. Minimum pension payments

If you decide to take a super pension, you must receive income stream payments at least annually and they must be at least the minimum annual amount set by the government.

The minimum pension payment is a set percentage of your account balance at commencement, or at 1 July for every subsequent year. This varies by age, increasing as your age increases.

There is no maximum amount you need to take, unless it is a transition-to-retirement pension not in the retirement phase. In this case, the maximum amount is 10% of the account balance.

2. Transfer balance cap (TBC)

The TBC applies from 1 July 2017 and is a limit on the total amount of super savings you can transfer into the retirement phase to pay a super pension (like an account-based pension). The TBC is set at $1.6 million for 2020/21 and is indexed in line with the Consumer Price Index.

Under the super rules, you can commence multiple super income streams in retirement phase as long as you remain below the TBC. All your super income streams in retirement phase are included and it does not matter how many super accounts or funds you have.

Withdrawing from a defined benefit super fund

Defined benefit super funds are usually large corporate or government employer super funds and the tax rules for these funds are generally the same as for other types of super funds.

Different tax rates apply, however, if you are a member of an untaxed defined benefit scheme or a constitutionally protected fund (CPF). These are mainly public sector schemes like Triple S in South Australia and West State Super and Gold State Super in WA.

Unlike the majority of super funds that pay tax on behalf of their members on a regular basis, untaxed funds and CPFs don’t pay tax on contributions or earnings until the member leaves the fund.

In general, if a member of an untaxed scheme or CPF is over age 60 and withdraws a lump sum, they pay 15% tax on the untaxed component of their super benefit up to the untaxed plan cap ($1.565 million in 2020/21). Any amount over this cap is taxed at the top marginal tax rate (45% in 2020/21) plus the Medicare levy. There is no tax payable on any taxed component of their benefit.

Tax time: Here’s what you need to know about your tax return

Generally, if you take a lump sum from your super account after you reach age 60, you will not need to include it in your annual income tax return as your super fund will have notified the ATO.

Although super income stream payments are tax-free once you are aged 60 and over (other than the two exceptions noted above), you may still need to declare some elements of the income stream in your tax return.

Age Pension and super benefits: How do they interact?

Taking either a lump sum or an income stream from your super account can affect your entitlement to either a full or part government-funded Age Pension.

Both your income and assets are counted to determine if you are eligible to receive an Age Pension. So if you have withdrawn your super benefits as either a lump sum or an income stream, the money will be counted under the assets and income tests.