In short

Super withdrawals from a taxed fund — pension payments or lump sums — are entirely tax-free from age 60, and pension-phase earnings are also taxed at zero percent. The tax-free/taxable component split becomes relevant only at death: if left to a non-tax-dependant such as an adult child, the taxable component is taxed up to 17% effective, which a recontribution strategy can reduce over time.

The Australian superannuation system's most valuable in-retirement feature is widely known but unevenly understood. Super withdrawals after age 60 from a taxed super fund are generally tax-free — both pension payments and lump sums. Combined with zero percent tax on investment earnings inside pension-phase super, the result is that most Australian retirees receive tax-free retirement income from their superannuation. This article explains the rule, why it works the way it does, and the specific exceptions where different rules apply.

The 60-plus rule: tax-free withdrawals from taxed funds

From age 60, withdrawals from a taxed superannuation fund — which covers virtually all private sector super funds, industry funds, and retail funds — are not included in assessable income. They do not appear on the tax return. They do not affect income tax liability or taxable income used for other calculations (such as the Medicare Levy Surcharge threshold or the HELP repayment threshold). Whether the member draws down via regular account-based pension payments or a one-off lump sum, the tax treatment is the same: zero (ITAA 1997, Division 301).

This applies to the entire balance, subject to the component distinction discussed below. The rule operates because contributions and earnings inside a taxed super fund have already been subject to 15% contributions tax (or 15% earnings tax in accumulation phase) — the "taxed fund" designation reflects that the tax has been paid at the fund level. At withdrawal after age 60, no further tax is imposed.

Preservation age — the age at which super can be accessed — is currently 60, completing a gradual increase from 55 that began in 1997. Anyone reaching preservation age in FY2024-25 or later has a preservation age of 60 (confirmed from FirstTech TTR Strategies 2025-26), so for all practical purposes in current retirement planning, access and tax-free status are both triggered at 60.

The components framework: why it matters despite tax-free withdrawals

Super balances are divided into two components: the tax-free component and the taxable component. The tax-free component consists of after-tax (non-concessional) contributions, government co-contributions, and certain other amounts. The taxable component consists of employer SG contributions, salary sacrifice, personal deductible contributions, and the investment earnings on all of these.

For withdrawals during life after age 60 from a taxed fund, this distinction is irrelevant — both components are tax-free. The distinction matters at death.

When a super death benefit is paid to a non-tax-dependant — typically an adult child of the deceased member — the tax-free component passes tax-free, while the taxable component (taxed element) is taxed at a maximum of 15% plus the applicable Medicare levy (2%), producing an effective maximum rate of 17% (ITAA 1997 Division 302, confirmed from FirstTech Super Death Benefits 2025-26). For a retiree with $1.5 million in super composed largely of taxable component, the potential death benefit tax liability on the entire balance is approximately $255,000 — a material estate planning consideration.

This is why the recontribution strategy — withdrawing from super and recontributing as non-concessional contributions, converting taxable component to tax-free component — is particularly valuable for retirees with adult children as their intended super beneficiaries. Each dollar of taxable component converted to tax-free component saves approximately 17 cents in eventual death benefit tax. Over time and at scale, the strategy's value is substantial.

The untaxed element: the public sector exception

Some superannuation schemes hold amounts that have never been subject to the 15% fund-level contributions tax. These untaxed elements arise primarily in public sector unfunded defined benefit schemes, where employer contributions are notionally credited to members but not actually paid into a fund and taxed in the accumulation phase. Members of Commonwealth, state, and territory public sector super schemes may have untaxed elements in their benefits.

For these members, the standard "tax-free at 60" rule does not apply to the untaxed element. Withdrawals of the untaxed element are assessable income, taxed at marginal rates with a 10% offset for withdrawals after age 60. At death, the untaxed element passing to a non-tax-dependant is taxed at a maximum of 30% plus Medicare levy — substantially higher than the 17% effective rate on taxed elements (confirmed from FirstTech Super Death Benefits 2025-26).

Public sector members should not assume the standard private-sector rules apply. The benefit statement from the scheme should identify any untaxed amounts, and specialist advice on the scheme's specific rules is appropriate before making withdrawal decisions.

Pension phase: the complete picture

For super held in pension phase (an account-based pension), the tax position combines the two relevant rules. Investment earnings inside the pension account are taxed at zero percent (ITAA 1997 s.295-390). Pension payments to a member aged 60 or over are tax-free (ITAA 1997 Division 301). The combination means the pension account compounds on pre-tax returns, and the income drawn from it is received tax-free. For most retirees, this is the most tax-effective income source available — superior to equivalent returns from bank accounts, investment properties, and shares held outside super, all of which produce assessable income.

The low rate cap: a historical note

Before preservation age was fully aligned with age 60, members who accessed super between their then-preservation age (as low as 55 for those born before 1 July 1960) and 60 faced a different tax treatment. Withdrawals in that 55-to-60 window were taxed, but with a lifetime low rate cap that allowed a certain amount to be withdrawn at a low (15%) rate before higher marginal rates applied. The low rate cap is now largely historical — the full alignment of preservation age at 60 means that essentially all working Australians will access super at 60, at which point the tax-free treatment applies immediately. For retirees now in their 60s or older who accessed super in the historical preservation age window, specific transitional considerations may still apply; a current tax adviser or financial adviser can confirm the position.

A worked illustration

A 72-year-old retiree has $1.4 million in pension-phase super: $200,000 tax-free component and $1.2 million taxable component (taxed element). During her lifetime, all pension income and any lump sum withdrawals are tax-free. Inside the fund, investment earnings of 7% ($98,000 in year one) are also tax-free.

At her death, if the benefit passes to her adult daughter (a non-tax-dependant), the $200,000 tax-free component passes tax-free. The $1.2 million taxable component is subject to 15% plus Medicare levy — approximately $204,000 in death benefit tax, leaving approximately $1.196 million net to the daughter. By undertaking a recontribution strategy in her early 70s — withdrawing $110,000 per year and recontributing as non-concessional contributions — she can progressively convert taxable component to tax-free component, reducing the eventual death benefit tax with each year of the strategy.

Sources

Key takeaways

  • Withdrawals from a taxed super fund — regular pension payments or one-off lump sums — are entirely tax-free from age 60, and don't appear on the tax return at all.
  • The tax-free/taxable component split in a super balance doesn't matter for withdrawals during life after 60, but it becomes important at death.
  • A super death benefit paid to a non-tax-dependant (typically an adult child) is taxed up to 17% effective on the taxable component, while the tax-free component passes tax-free regardless.
  • Public sector members with untaxed elements (common in unfunded defined benefit schemes) don't get the standard tax-free-at-60 treatment on that portion, and face a higher 32% effective death benefit tax rate.
  • A recontribution strategy — withdrawing super tax-free and recontributing as non-concessional contributions — progressively converts taxable component to tax-free component, reducing eventual death benefit tax for adult-child beneficiaries.

Frequently asked questions

Do I pay tax when I withdraw money from my super after I retire?

Not if you're 60 or over and withdrawing from a taxed super fund (which covers virtually all private sector, industry, and retail funds). Both pension payments and lump sum withdrawals are entirely tax-free and don't appear on your tax return at all.

If super withdrawals are tax-free, why does the tax-free/taxable component split still matter?

It matters at death, not during your lifetime. If your super death benefit passes to a non-tax-dependant — typically an adult child — the taxable component is taxed up to 17% effective, while the tax-free component passes to them completely tax-free.

What is the recontribution strategy and why would I use it?

It's withdrawing super tax-free (since you're over 60) and recontributing the same money as a non-concessional contribution, which converts it from taxable component to tax-free component. Doing this progressively reduces the eventual death benefit tax bill if your beneficiaries are adult children rather than a spouse.

Does the tax-free-at-60 rule apply to public sector super schemes?

Not always in full. Some public sector unfunded defined benefit schemes hold "untaxed elements" that have never had the standard 15% fund-level contributions tax applied. Withdrawals of these amounts remain assessable income even after 60 (with a 10% offset), and the death benefit tax rate is higher — up to 32% effective rather than 17%.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.