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    TaxKiln Australia
    TaxKilnAustralia tax guidance

    Super at Retirement: Pensions, Lump Sums, and the Transfer Balance Cap

    Preservation age, conditions of release, account-based pension drawdown rates, tax-free and taxable components, transition-to-retirement streams, and the $2,000,000 transfer balance cap for 2025-26.

    From age 60, both lump sums and pension payments from a taxed super fund are tax-free in the member's hands. The transfer balance cap for 2025-26 is $2,000,000, limiting how much can move into the 0% tax retirement phase. Below age 60, lump sums from taxed sources are tax-free up to the low-rate cap of $260,000 (once preservation age is reached), with amounts above that taxed at a maximum of 15% plus Medicare levy.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →

    Conditions of release: when you can access your super

    Full access to preserved super benefits requires meeting a condition of release. The most common conditions are retirement after preservation age (genuine retirement with no intention to return to gainful work of 10 or more hours per week), reaching age 65 (fully unrestricted regardless of work status), terminal medical condition, and permanent incapacity. Limited access is available on compassionate grounds (tightly assessed) and severe financial hardship.

    Account-based pensions: drawdown rates and tax treatment

    Once in retirement phase, an account-based pension pays a regular income stream. Minimum annual drawdown rates are set by SIS Schedule 7 and based on age at the start of each financial year. The COVID-era 50% reduced minimums have ended; standard rates apply for 2025-26. There is no legislated maximum for retirement-phase pensions (unlike TTR pensions). Earnings on assets supporting the pension are taxed at 0% (exempt current pension income).

    Tax on super benefits: tax-free and taxable components

    Every super benefit has a tax-free component and a taxable component. The tax-free component is always tax-free regardless of age, payment method, or beneficiary type. The taxable component from a taxed source is tax-free at age 60 and above for both lump sums and pensions.

    Below age 60 (taxed source)

    Pensions: the taxable component is included in assessable income, but a 15% tax offset applies for taxed elements, reducing effective tax. Lump sums: the taxed element is tax-free up to the low-rate cap ($260,000 for 2025-26) once preservation age is reached. Above the low-rate cap, the maximum rate is 15% plus Medicare levy. Untaxed elements face higher rates up to the untaxed plan cap ($1,865,000 for 2025-26).

    Transition-to-retirement (TTR) income streams

    A TTR pension allows a member who has reached preservation age but not met a full condition of release to draw a limited income stream while still working and contributing. The minimum drawdown is 4% and the maximum is 10% of the account balance. Since 1 July 2017, earnings on TTR pension assets are taxed at 15% in the fund (not 0%), which reduced the attractiveness of the strategy.

    Transfer balance cap: $2,000,000 for 2025-26

    The general transfer balance cap limits how much a member can move into the 0% tax retirement phase. From 1 July 2025, the general TBC is $2,000,000. A member's personal TBC may be lower (between $1,600,000 and $2,000,000) depending on how much cap was used before each indexation event.

    Credits and debits

    Credits are recorded when a member starts a retirement-phase income stream or receives a reversionary pension (at the starting value). Debits occur on commutations (converting pension back to accumulation or withdrawing from super), structured settlement contributions, and certain other events.

    Exceeding the cap

    If total retirement-phase amounts exceed the personal TBC, the member must commute the excess back to accumulation or out of the super system. Excess transfer balance tax applies on the associated earnings. Defined benefit income streams are valued for TBC purposes using a factor of 16 times the annual pension in most cases.

    Lump sum vs pension: strategic considerations from age 60

    At age 60 and above from a taxed fund, both lump sums and pensions are tax-free in the member's hands. The decision is strategic, not tax-driven at the personal level. The key trade-offs relate to the ongoing fund earnings environment and retirement sustainability.

    Worked example: retiring at 62 with $1.1 million in super

    Ngoc, a retired accountant in Hobart, turns 62 in 2025-26. She has $1.1 million in super, of which $200,000 is tax-free component and $900,000 is taxable component (taxed element). She starts an account-based pension with the full balance.

    Statute references

    • ITAA 1997 Divisions 301 to 307 (taxation of super benefits: taxed/untaxed elements, income streams vs lump sums)
    • SIS Regulations, Schedule 7 (age-based minimum pension percentages)
    • SIS Act 1993 (conditions of release, preservation rules)
    • ATO rates and thresholds 2025-26 (low-rate cap $260,000, untaxed plan cap $1,865,000, TBC $2,000,000)

    Frequently asked questions

    At what age can I access my super without restriction?+
    Super becomes fully unrestricted non-preserved at age 65, regardless of whether you continue to work. Before age 65, you can access preserved benefits from preservation age (60 for anyone born after 30 June 1964) if you have genuinely retired with no intention to return to gainful employment of 10 or more hours per week. Terminal medical condition and permanent incapacity are additional full-access conditions at any age.
    Is a super pension taxed differently from a lump sum at age 60?+
    No, both are tax-free from a taxed super fund at age 60 and above. The taxable component of both lump sums and account-based pension payments attract zero tax and zero Medicare levy. The difference is strategic, not tax-driven: pensions keep capital in the 0% earnings environment, while lump sums give full flexibility but lose the concessional fund tax on future earnings.
    What is a transition-to-retirement pension and is it still worth using?+
    A TTR pension allows members who have reached preservation age but not yet fully retired to draw an income stream (minimum 4%, maximum 10% of account balance) while still working and contributing. Since 2017, fund earnings on TTR assets are taxed at 15% (not 0% like retirement-phase pensions). The strategy remains viable for salary sacrifice arrangements that reduce overall tax, but is less powerful than before the 2017 change.
    What happens if I exceed the transfer balance cap?+
    If total retirement-phase amounts exceed your personal TBC, you must commute the excess back to accumulation phase or withdraw it from super. The ATO may also assess excess transfer balance tax on associated earnings. Your personal TBC may be between $1,600,000 and $2,000,000 depending on how much cap has been used before each indexation event.

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