Tax on Pensions

Taxation rules that apply to super can be complicated. The following information is an overview of the tax treatment of pensions. You should seek professional taxation or financial advice to understand the impact of tax upon your pension.

For more information visit the ATO website at www.ato.gov.au/individuals or call the ATO Call Centre – Superannuation Enquiries on 13 10 20.

Transaction type Tax applicable
Transfer in from another super fund1 Nil
Investment earnings Nil
Pensions are exempt from paying income tax on investment earnings2
Pension income payments If aged 60 or over – Nil
If aged between 553-59 – the taxable component will be taxed at your marginal tax rate: however, a 15% tax offset will apply
Lump sum withdrawals Standard rules apply – see below
¹Excluding any untaxed elements
2Tax on transition to retirement pension earnings proposal (not yet law at the time of writing): The government has proposed removing the tax exemption that applies to earnings on investments of a pre-retirement (or transition to retirement) pension from 1 July 2017. This means that pre-retirement pension investment earnings will be subject to the same tax rate that applies to super in accumulation phase – a maximum rate of 15%, including capital gains tax which in some circumstances may be discounted to a rate of 10%. The actual tax payable may be lower than 15%, as imputation credits from share dividends reduces tax payable on investment earnings.
3For those born from 1 July 1960, age 55 is replaced with your relevant preservation age (see PDS).

You may have to pay tax when you withdraw money from NSF Super (including lump sum withdrawals from a pension). The amount of tax will depend on your circumstances, including your age.

Age Tax payable on lump sum withdrawals
Tax-free Component Taxable Component
Under 55 Not subject to tax 20% plus Medicare Levy
55²-59 Not subject to tax First $195,000¹ – 0%
Balance over $195,000 – 15% plus Medicare Levy
60 and over Not subject to tax Not subject to tax
¹This is the amount for the 2016/17 financial year and is indexed annually.
²For those born from 1 July 1960, age 55 is replaced with your relevant preservation age.

Lump sum withdrawals on the grounds of total and permanent disability (TPD) or terminal illness are taxed differently. Please contact the NSF Super team for more information.

Your pension benefit is made up of two different tax components. The tax-free and taxable components are generally made up of the following contribution types:

Tax-free Component Taxable Component
Non-concessional contributions
(i.e. after-tax, personal)
Concessional contributions
(e.g.employer and salary sacrifice contributions)

When pension payment or lump sum withdrawals are paid to you, you are not able to specify the proportion in which the taxation components are paid out, i.e. all taxation components will be paid out in proportion to the taxable and exempt components of the benefit.