Taxation in Pension Phase

In the pension phase, the tax rate is zero on all investment income earned on the underlying assets which are used to support the super pension. This is a significant benefit in housing wealth within a super fund and then transferring funds into a pension fund upon retirement.  There is a maximum amount that a member can hold within a super pension account. This is known as the Transfer Balance Cap. The general Transfer Balance Cap is currently set at $1.9 million (indexed) per person for the 2024-25 financial year. Any excess above $1.9m must either be withdrawn and held in a superannuation account, where the earnings are taxed at 15%, or withdrawn and invested outside of super. Note that if the amount held in a pension account grows over time because of investment earnings, this will not result in the cap being exceeded. If you only use a portion of the Transfer Balance Cap, the unused portion will be indexed over time and will determine any additional amounts able to  be contributed to the pension account.

Although the tax on income generated within the pension account is tax free, the extent of any tax payable by the member on pension payments received or any lump-sum withdrawals will depend on the person's age and the underlying components that make up their super balance. We review this later in the module.

Refer to the Tax and Structures module for more information on tax and super.