Tax on superannuation earnings after 60–65: How to keep more of your retirement income

Are you turning 60 or 65 soon? Wondering what happens to your super?

It's a good question to ask yourself because sometimes not knowing how taxes work during retirement can lead to a situation where you pay more tax than you need. According to SMC research, this is the case for around 700,000 Australian retirees.

In this content, we’ll cover everything you need to know to avoid situations like this. Our checklist will also help to prevent unpleasant surprises, so you can structure your finances to avoid unnecessary taxes and make your money last longer.

How tax on super earnings works in retirement: different scenarios

Not everyone’s tax position is the same in retirement. It depends on your income mix, whether you’re receiving the Age Pension, and whether you’re still working.

1. If your earnings come from superannuation

When you reach the age and retire, you can transfer some or all of your super from the Accumulation Phase to the Retirement Phase (also known as an account-based pension or allocated pension). Note: Minimum annual drawdown requirements apply to account-based pensions.

The big benefit? The money your fund earns from investments is generally tax-free, up to your Transfer Balance Cap. But remember, any money that stays in the accumulation phase still pays 15% tax on earnings.

2. If you’re still working after 60 or 65

If you are one of the many Australians who continue working past 60, whether full-time or part-time, you should know the following:

• Your employer must continue to make super contributions, which are taxed at 15% when they enter your fund.
• You can take advantage of salary sacrifice to boost your super tax-effectively. Any voluntary super contributions you make continue to be taxed at 15% too.
• Don’t forget that your work income plus your super income may push you into a higher tax bracket or reduce some tax offsets.
• Once you reach 75, your employer must still make super contributions, but you generally cannot make additional salary sacrifice contributions yourself, except for downsizer contributions.

3. If you also receive the Age Pension

• If you are receiving the age pension, the good news is that it is also tax-free. However, be aware that this could affect how other earnings you receive are taxed.
• Centrelink looks at both your income and assets, including your super balance and withdrawals, to decide how much pension you’re entitled to.
• By planning your withdrawals carefully, you can enjoy tax-free income from your super while keeping as much government support as possible.

Need help planning your retirement?

Contact your fund today

How to avoid overpaying tax on super earnings after 65: Step-by-step process.

Most Australians have full access to their super by age 65. Their mission then shifts from accumulating savings to managing them wisely. So, if you are part of this group, the first thing you should do is ensure you don’t pay more tax than necessary.

1. Review your Transfer Balance Cap (TBC)

• The TBC limits how much you can transfer into the tax-free phase.
• You can find the current cap thresholds here.
• Any excess remains taxable in accumulation.

2. Move eligible funds into the Retirement Phase

• This is a recurring theme in this content because it is crucial. As mentioned above, recent research by SMC revealed that billions of dollars remain in accumulation accounts instead of being moved into the tax-free retirement phase, meaning thousands of retirees could be losing money to avoidable tax every year.
• Remember that only funds in the retirement phase enjoy tax-free earnings. If you have some doubts, check whether your account has been correctly switched over once you’ve retired.

3. Consider spouse contribution splitting

If you or your partner has a higher superannuation balance, splitting contributions can help balance both accounts within their respective caps, achieving better tax efficiency for both of you.

4. Check your eligibility for SAPTO

It is also worth checking whether you can reduce your tax through the Seniors and Pensioners Tax Offset (SAPTO). You must meet certain age and income criteria (all the information on the ATO's SAPTO page).