No safety net: planning for self-funded retirees above the Age Pension cutoff

For Australian retirees with substantial assets, retirement has a different character to the experience of those who receive a full or partial Age Pension. The good news is that financial security is largely assured. The challenge is that without the Age Pension as a floor — even a modest one — every dollar of retirement income must come from personal assets, and the planning decisions around drawdown, tax efficiency, and estate management carry proportionally more weight. This article gives a plain-language overview of the key planning areas for self-funded retirees, meaning those whose assessable assets exceed the Age Pension asset test cutoff.

What does it mean to be above the Age Pension cutoff?

Current asset-test cutoffs (effective 20 March 2026): single homeowner $722,000; couple homeowner combined $1,085,000; single non-homeowner $980,000; couple non-homeowner combined $1,343,000 (Services Australia, https://www.servicesaustralia.gov.au/assets-test-for-age-pension). Above those levels, no Age Pension is payable. The taper rate — $3 reduction per fortnight for every $1,000 of assessable assets above the full-pension free area, as confirmed by the DSS Social Security Guide (4.2.3, March 2026 release) — means the transition from part-pension to zero pension is gradual; but once assessable assets exceed the upper cutoff, the payment is nil.

Being above the cutoff does not mean being ineligible for all government support. The Commonwealth Seniors Health Card — which provides discounted Pharmaceutical Benefits Scheme prescriptions and some other concessions — remains available to those of Age Pension age (67) whose adjusted taxable income is below the CSHC income threshold. Current CSHC income limits (effective 20 September 2025 to 19 September 2026): single $101,105/year; couple combined $161,768/year; couple separated by illness $202,210/year each (Services Australia, https://www.servicesaustralia.gov.au/income-test-for-commonwealth-seniors-health-card). Indexed each 20 September. For most self-funded retirees with their primary wealth in pension phase superannuation — where earnings are untaxed and withdrawals for those over 60 are tax-free — the CSHC income test is often manageable, because taxable income tends to be low even where total wealth is substantial.

Why is pension phase superannuation the central planning tool?

For self-funded retirees, the pension phase superannuation exemption is the most valuable single feature of the tax system. Investment earnings inside a pension phase superannuation account are taxed at zero — compared with the marginal income tax rates (up to 45%) that apply to investments held personally. The Transfer Balance Cap, which is $2.0 million per person for FY2025-26 (up from $1.9 million in FY2024-25), limits how much can be moved into the pension phase account. For couples, the effective combined cap is $4.0 million — up to $4 million earning zero tax in pension phase. Any super balance above the TBC remains in accumulation phase, taxed at a flat 15% on earnings; this is still substantially more efficient than most marginal personal rates for retirees with significant income, but it is not the zero-tax environment of pension phase.

For a couple with $3 million in super between them, fully deploying $2 million per spouse into pension phase and managing the remaining $1 million in accumulation can produce significant tax savings relative to holding the same assets personally. The numbers are meaningful: on a $4 million pension phase balance earning 6% per year, the zero tax rate saves $240,000 annually compared with the same assets held outside super at a 40% effective rate. Strategic structuring between pension phase and accumulation — and decisions about whether to make additional contributions where the rules permit — are central to self-funded retirement planning.

How do SAPTO and franking credits work as other tax levers?

Even for retirees whose primary investment is in pension phase super, the Senior Australians and Pensioners Tax Offset has practical relevance for income that falls outside the super environment. A self-funded retiree eligible for SAPTO faces no income tax on the first $35,813 of taxable income (single) or $31,888 per person (couple members) in FY2025-26, as confirmed by FirstTech's Super Contribution Checklists for 2025-26. This is a higher effective tax-free threshold than applies to working-age taxpayers, reflecting the SAPTO's design intention to support lower-income retirees. For self-funded retirees with modest income outside super — some interest, some trust distributions, some franking credit income — the SAPTO can substantially reduce or eliminate the personal income tax on that income.

Franking credits are the other significant tax lever. Australian company dividends carry attached imputation credits at the 30% corporate rate. For a retiree with low taxable income — even below the effective tax-free threshold — those credits produce cash refunds from the ATO. This makes Australian shares with high franking ratios particularly tax-efficient for self-funded retirees managing income outside super.

What's different about drawdown strategy without the safety net?

Self-funded retirees need to be more deliberate about drawdown than those with an Age Pension floor, because there is no fallback if the strategy proves too aggressive. A drawdown rate of 4 to 6 percent from a substantial superannuation balance is typically sustainable over a long retirement for large balances, but the absence of any pension income means the consequences of poor sequencing — a significant market fall in the early years of retirement when drawdown needs are high — are larger. Strategies that manage sequencing risk include maintaining a cash buffer of two to three years of planned expenditure outside the growth portfolio, varying drawdown rates with market conditions, and using a portion of assets to establish a guaranteed income layer (such as a lifetime annuity) to cover essential costs regardless of investment returns.

Why are the estate planning stakes elevated for self-funded retirees?

For self-funded retirees with substantial estates, estate planning is not optional background work — it is a direct planning priority. Superannuation death benefits are not automatically part of the estate; they are distributed by the fund trustee according to binding death benefit nominations, which must be current and valid. A lapsed nomination reverts to a non-binding position. The tax treatment of death benefits paid to non-tax-dependants (typically adult children) can be substantial, and recontribution strategies — withdrawing from super and recontributing as non-concessional contributions, shifting the taxable component to tax-free — can reduce or eliminate death benefit tax at the cost of managing contribution caps. Testamentary trust structures can provide further tax efficiency and asset protection for beneficiaries of substantial estates. The interaction between super, personal assets, property ownership form (joint tenancy vs tenancy in common), and the will requires integrated advice from a financial adviser and an estate planning solicitor working together.

For self-funded retirees, the complexity is real but the planning framework is well-established. The main risk is drift — not reviewing and updating arrangements as rules change, balances grow or fall, and family circumstances evolve. A structured annual review covering pension phase balances, TBC headroom, CSHC eligibility, drawdown adequacy, and estate document currency addresses most of the ongoing maintenance the framework requires.

Sources

• DSS Social Security Guide 4.2.3