Retirement income & tax
Tax and retirement income streams
The amount of tax you will pay on your retirement income stream
depends on the type of income stream, when you started it and what
it was purchased with.
Here we explain how different retirement income streams are
taxed and why it depends on whether they were bought with
How super income streams are taxed
Super income streams are also known as pensions and annuities.
They can be account-based pensions with no
set time period or annuities that are fixed for a specific
period of time.
Superannuation benefits are made up of two components, taxable
The taxable component is made up of:
- Employer contributions
- Salary sacrificed contributions
- Personal contributions where a tax deduction was claimed
The tax-free component is made up of:
For people aged 60 and over
Benefits from a taxed super fund (i.e. most super funds) are
For people aged 55 to 59
No tax is payable on the tax-free component of your income
payment. The taxable component of your income payment will be added
to your taxable income. It will be taxed at your marginal tax
rate, less a tax offset equal to 15% of the taxable portion of
Work out your marginal tax rate.
Income tax calculator
Benefits paid to people aged under 55
It is rare for people under age 55 to be able to access their
super. Usually your super can only be accessed if you become
permanently disabled. In this case, you will be taxed as if you are
If you are accessing your super for reasons such as hardship,
the rules are slightly different. The tax-free component of your
income payment will be tax free. The taxable component of your
income payment will be added to your taxable income and taxed at
your marginal tax rate.
Members of government super funds
Some government super funds don't pay regular tax, and are known
as 'untaxed funds'. If you are a member of an untaxed fund, you may
be taxed when you take out your benefit. Ask your super fund for
How transition to retirement income streams are taxed
A transition to retirement
income stream is a pension bought with super money while you are
still working. You must have reached your preservation age.
Find out your preservation age.
pension age calculator
You are restricted to withdrawing a maximum of 10% of the
balance each financial year and you are not allowed to withdraw
These restrictions do not affect the tax treatment of the money
you take out. The tax is the same as ordinary retirement income
streams purchased with super money, based on your age.
Tax on transition to retirement pensions
Investment returns on TTR pensions are taxed at up to 15%, just
as they are in a super accumulation account. More information about
changes to super contribution limits, tax concessions and the
amount that can be held in a retirement phase account can be found
on the Australian Tax Office (ATO) website.
How income streams from defined benefit super funds are taxed
Defined benefit income streams usually come from an employer
super fund or a government employee super scheme.
Calculating the tax-free portion of a defined benefit income
stream is very complex. However, before you are eligible for your
benefit, your fund will send you a statement which will set out
exactly how much is taxable and how much is tax free.
Different tax rules for non-super income streams and
An annuity is
an income stream purchased with money outside the super system. It
will pay you a fixed income for a defined period of time,
regardless of how the markets are performing.
Income from annuities, less a deductible amount, will be taxed
at your marginal tax rate. The deductible amount represents the
amount of your original capital that is being returned to you with
each pension payment.
Tax on retirement income streams can be a
complex area and we recommend you seek help from a tax professional
adviser. For most people, income streams bought with super
money will be tax free from age 60.
Last updated: 22 Oct 2018