Quick Look
Focus: How super is taxed differently before and after retirement—and why it matters.
Key Takeaways :
Superannuation is one of the most tax-friendly ways to save for retirement in Australia. But the rules — and the benefits — change depending on whether you’re still building your balance (accumulation phase) or drawing an income (pension phase).
Getting the tax treatment right can make a significant difference to your retirement income. Let’s unpack the key differences, caps, and conditions — so you can have smarter conversations with your adviser or fund.
Super tax rules are generous — but also complex. Most Australians know super is “low tax” ,but not everyone understands how the rules change when you retire.
In accumulation phase, your super is still growing — and taxed at up to 15% on contributions and earnings. Once you retire and start a retirement income stream (like an account-based pension), your super can become tax-free.
However:
Understanding these rules helps you avoid unnecessary tax — and make the most of your hard-earned super.
This is the default phase for most working Australians. You’re adding to super via employer contributions, salary sacrifice, or personal contributions.
Tax rules in this phase:
To move to a transition pension phase, you must meet a condition of release such as:
To move to pension phase, you must meet a condition of release such as:
In this phase, you draw a regular income and enjoy major tax benefits.
Tax rules in pension phase:
You must withdraw a minimum percentage of your pension account each year:
Age Minimum % of balance (2024–25)
(These rates are set by the ATO and can change with economic conditions.)
You can hold both accumulation and pension accounts at the same time. For example, if your total super is $2.2 million, you could:
Is all my super tax - free once I retire?
No—only the pension phase account (up to your cap) earns tax-free returns. The rest stays taxed at 15%.
What happens if I go over the $2.0 million cap?
The excess must remain in accumulation phase. If you accidentally exceed the cap when commencing the pension, the ATO may require a refund and apply penalties. However, it is acceptable for the pension account to grow to be more than the cap if earnings are greater than pension drawings.
Can I stop minimum pension withdrawals if markets crash?
Generally, no — if the minimum isn’t paid, the pension may lose its tax-free pension treatment for that year (unless ATO relief applies). In severe downturns, the government may temporarily reduce the rates (as seen during COVID-19 when rates were dropped to half the normal).
Do I pay tax on withdrawals?
If you’re aged 60 or over, withdrawals from a taxed super fund are typically tax-free.
Understanding the difference between accumulation and pension phase is key to getting the most out of your super.
You don’t need to be an expert, but knowing the rules — like the 15% contributions tax, 0% earnings in pension phase, and the $2.0 million cap— helps you make smarter choices.
And when the time comes to retire, the right strategy can mean more income in your pocket and less going to the taxman.
Getting ready to retire?
moneyGPS helps you set up a regular income stream using your super, tailored to your retirement plans.
Available online for $220. You can explore the platform for free and access the advice when you’re ready.
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Disclosure: General information only. Consider your objectives, financial situation and needs, and seek professional advice before acting.
Disclaimer: All information on Super Advice Ai is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on Super Advice Ai is appropriate to you before acting on it. If Super Advice Ai refers to a financial product, you should obtain the relevant Product Disclosure Statement (PDS) or seek professional advice from a licensed financial planner.
