Is Income From Super Tax Free For Over 60s In Australia?

What You Can Earn Without Paying Tax?

Quick Summary

For most Australians, the statement “income from super is tax free after 60” is broadly correct, but dangerously incomplete. Australia’s superannuation system is intentionally generous once you reach age 60, however the tax-free treatment is not automatic, as it is the result of meeting specific conditions, which this article investigates.

Table Of Contents

• Why Age 60 Is A Critical Turning Point in Superannuation
• Why This Matters To You (even if you don’t feel close to retirement
• Is Superannuation Income Tax Free After 60
• What Is A “Taxed” Super Fund & Why Most People Don’t Realise It Matters
• Super Pensions After 60: Where Tax-Free Income Really Happens
• Lump Sum Withdrawals From Super After 60
• Why The Tax-free Label Can Be Misleading
• Untaxed Super Funds: When Tax Can Still Apply
• Preservation Age vs Age 60: A Common Source of Confusion
• Do You Have to Retire for Super to Be Tax Free?
• The $2 Million Super Transfer Balance Cap
• Super & The Age Pension
• How Many Retirees Actually Pay No Tax?
• The Most Common Mistakes We See Retirees Make
• Estate Planning & Tax After Death
• Frequently Asked Questions (FAQ)

For many Australians, superannuation is the single largest asset they will ever own outside the family home. Yet despite its importance, super is also one of the most misunderstood parts of the financial system, particularly when it comes to tax.

One of the most common statements we hear from clients approaching retirement is:

“Once I turn 60, my super is tax free, so I don’t really need to worry about it anymore!”

This is an understandable assumption, which is partly true, but also partly dangerous.

Australia’s superannuation system can provide tax-free income after age 60, but it does not do so automatically. Whether your income is genuinely tax free depends on how your super is structured, how it is withdrawn, what type of fund you are in, and how your broader financial picture fits together.

This guide explains in plain English, when super income is tax free after 60, when it isn’t, and why the statistics around super matter even if you’ve never thought of yourself as “needing financial advice”.

Why Age 60 Is A Critical Turning Point in Superannuation

Turning 60 is not just a birthday milestone, it is one of the most important tax thresholds in the Australian financial system.

Under Australia’s retirement framework, age 60 is the point at which most superannuation benefits can become tax free, provided certain conditions are met. This policy choice is deliberate. It exists to encourage Australians to save for retirement and to reduce long-term reliance on government support.

According to the Australian Taxation Office, the concessional tax treatment of super in retirement is one of the most generous features of the entire tax system.

Why This Matters To You (even if you don’t feel close to retirement)

Many Australians assume tax outcomes will “sort themselves out”. In reality, tax outcomes follow structure, not age.

• Super is not just a savings account, it is a tax structure

• The way you access it can permanently change your tax position

• A small decision at 60 can affect 20–30 years of income

Is Superannuation Income Tax Free After 60

If you are aged 60 or over and withdraw money from a taxed super fund, the following generally applies:

• Super pension (income stream) payments are tax free

• Super lump sum withdrawals are tax free

• No PAYG withholding applies

• No Medicare levy applies

• The income is not added to your taxable income

This rule exists because tax has already been paid inside the super system during your working life. Contributions and earnings are taxed at concessional rates, and the government’s policy intent is to stop taxing retirement income again once you reach a certain age.

For retirees, this often means:

• You may receive $40,000, $60,000 or even $100,000 per year from super

• Yet still lodge a tax return showing zero taxable income

• Your marginal tax rate may effectively be 0%

This is a powerful outcome, but only if your super is accessed correctly.

What Is a “Taxed” Super Fund & Why Most People Don’t Realise It Matters

Most people assume all super works the same way and it doesn’t. If your super is in a taxed fund (which it likely is), the tax-free rules after 60 can apply. If it isn’t, they may not.

A taxed super fund is one where:

• Contributions are taxed at 15%

• Investment earnings are taxed at up to 15%

• Capital gains may be taxed at 10%

• Earnings may become 0% in pension phase

Although not explicitly stated by the Australian Prudential Regulation Authority, in their latest bulletin, it is commonly believed within the superannuation industry, that more than 90% of Australians hold their retirement savings in taxed super funds.

These include:

• Industry super funds

• Retail super funds

• Corporate super funds

• Most self-managed super funds (SMSFs)

Knowing what type of fund you are in is one of the simplest and most overlooked steps in retirement planning.

Super Pensions After 60: Where Tax-Free Income Really Happens

Once a person has met a condition of release, they can convert super into an account-based pension. The ATO states that if the recipient is aged 60 or over, pension payments from a taxed super fund are not assessable income and are not taxed.

Once you are 60 or older:

• Pension payments from a taxed fund are completely tax free

• You do not need to declare them as income

• They do not affect your personal tax rate

APRA data shows that more than 1.4 million Australians currently receive a super income stream, making account-based pensions the most common retirement income structure. Additionally, the average retirement balance at retirement is $292,000 for men and $183,000 for women.

Many people assume tax-free pensions are only for high-balance retirees. That’s not true. Even modest balances can:

• Provide tax-free income

• Reduce reliance on the Age Pension

• Improve lifestyle sustainability

The issue isn’t how much super you have, it’s how it’s used.

Lump Sum Withdrawals From Super After 60

The ATO also states that lump sum withdrawals from a taxed super fund taken after age 60 are generally tax free.

This is often used to:

• Clear mortgages or personal debt

• Renovate or downsize

• Help adult children

• Build personal investment portfolios

Why The Tax-free Label Can Be Misleading

While the withdrawal itself may be tax free:

• Large lump sums can affect Age Pension eligibility

• Money moved outside super loses its tax-advantaged environment

• Future investment earnings may become taxable

In other words, while the withdrawal itself may be tax free, once money leaves super it loses the concessional tax environment, meaning future earnings may become taxable.

Untaxed Super Funds: When Tax Can Still Apply

Some Australians, particularly former government employees, hold benefits in untaxed super funds.

The ATO explains that benefits paid from untaxed sources may still be taxed after age 60, subject to the untaxed plan cap (currently $1,856,000 for 2025–26). Amounts above this cap may be taxed at the highest marginal rate.

Assuming all super is tax free after 60 can lead to unexpected tax bills, for members of untaxed schemes.

This is one of the clearest examples of why understanding your super before withdrawing it matters more than your age.

Preservation Age vs Age 60: A Common Source of Confusion

Preservation age determines when super can be accessed, but does not determine tax treatment.

The ATO sets out that withdrawals made before age 60 may still be taxable, even if a person has reached preservation age and retired.

Depending on your birth date, preservation age ranges from 55 to 60.

Before 60

• Super withdrawals may still be taxable

• Pension payments may attract marginal tax rates

• Tax offsets may apply, but tax is not eliminated

After 60

• Tax treatment becomes dramatically more favourable

Many Australians access super at preservation age thinking tax outcomes will be the same as at 60. They aren’t.

Timing withdrawals incorrectly can result in unnecessary tax that could have been avoided by waiting until age 60.

Do You Have to Retire for Super to Be Tax Free?

Not always, as it depends how you access it.

According to the ATO, super income streams paid to individuals aged 60 or over are generally tax free, even if they are still working, provided the income stream is paid from a taxed source and the individual has met a condition of release.

In summary, if you are:

• 60+ and retired → tax-free super generally applies

• 60+ and still working → tax treatment depends on the structure

For example:

• Transition-to-retirement pensions before 60 are taxable

• After 60, pension payments typically become tax free

• Lump sums may still require a condition of release

With more Australians working into their 60s, understanding how work status interacts with super access is increasingly important.

The $2 Million Super Transfer Balance Cap

The ATO limits how much super can be transferred into the tax-free pension phase via the transfer balance cap, which is $2 million for the 2025 – 26 financial year.

This limits how much super can be moved into the tax-free pension phase.

Amounts above the cap must remain in accumulation, where earnings are taxed at 15%.

This cap isn’t just for “the wealthy”, it affects:

• Couples combining super balances

• SMSF members with property

• Long-term contributors who started early

• People who receive inheritances into super

Exceeding the cap can result in excess transfer balance tax and forced restructuring.

Super & The Age Pension

While super income may be tax free, it is still assessed by Centrelink under both the assets test and income test (using deeming rules).

Services Australia confirms that account-based pensions are assessed under deeming rules for the income test and counted as assets.

One of the biggest misunderstandings we see is this:

“If my super income is tax free, Centrelink won’t count it.”

Unfortunately, that’s not how it works, super pensions are assessed unde:

• The assets test

• The income test (using deeming)

Tax and Centrelink are separate systems. Optimising one without considering the other can unintentionally reduce overall income.

How Many Retirees Actually Pay No Tax?

ATO statistics indicate that:

Around 60% of Australians aged 65+ pay no income tax

• Superannuation income is the primary reason

• Retirees pay significantly less tax than working Australians

This demonstrates how effective super can be, highlighting that correct structuring is key to achieving this outcome, but it also shows that many retirees who should pay no tax still do, because their super is not structured properly.

The Most Common Mistakes We See Retirees Make

At Manly Financial Services, we regularly see clients who:

• Leave super in accumulation unnecessarily

• Withdraw funds in the wrong order

• Misunderstand taxable vs tax-free components

• Ignore Centrelink implications

• Trigger avoidable estate-planning tax

These mistakes are rarely about intelligence, they’re about information and timing.

Estate Planning & Tax After Death

The ATO indicates that super may be tax free to you, but not always to your beneficiaries.

Spouses and dependants usually receive benefits tax free

• Adult non-dependants may pay up to 15% + Medicare levy

Structuring super with estate planning in mind can preserve tens, or hundreds of thousands of dollars across generations.

Final Thoughts

From our perspective at Manly Financial Services, the difference between retirees who enjoy genuinely tax-free income and those who don’t usually comes down to a handful of avoidable issues.

• How Your Super Is Structured Matters More Than Most People Realise – Leaving money in accumulation when it could be in pension phase can quietly create ongoing tax on earnings inside super, even though you are over 60. This tax is not always visible, but over time it can materially reduce the longevity of your retirement savings.

• The Way You Withdraw Money Matters Just As Much As When You Withdraw It – A lump sum withdrawal may be tax free in the year it is taken, but once that money sits outside super, future earnings may become taxable. In contrast, a properly structured pension can continue delivering tax-free income year after year, while keeping investments sheltered in a low- or zero-tax environment.

• Super Does Not Exist In Isolation – While income from super may be tax free from an income-tax perspective, it can still affect Age Pension eligibility, cash-flow stability, and long-term sustainability. We regularly see retirees who pay no tax but still feel financially constrained, not because they lack assets, but because their income strategy was never aligned with the broader retirement system.

• Not all super is treated the same – Australians in older or untaxed schemes can face very different tax outcomes, even after age 60. Without understanding where your super sits and how its components are classified, it is easy to assume you are protected when you may not be.

• Estate Planning Often Reintroduces Tax If It Is Ignored – Super can be tax free during your lifetime but taxed when passed to adult children if the structure is wrong. For many families, this is one of the largest and least expected sources of unnecessary tax leakage across generations.

When retirement income is planned properly, super can deliver more than just tax efficiency. It can provide clarity, stability, and peace of mind, knowing that your income is working with the system, not against it.

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 Frequently Asked Questions (FAQ)

 

Important Disclaimer: The information provided in this article is general in nature and does not constitute financial advice. Please consult with a qualified financial advisor to discuss your individual circumstances before making any decisions.

References:

• ATO – Key Super Rates & Thresholds
• ATO – Retirement Withdrawal – Lump Sum Or Income Stream
• ATO – Untaxed Plan Cap
• ATO – Tax On Super Benefits
• APRA – Annual fund-level superannuation statistics
• APRA – Annual Superannuation Bulletin Dec 2025
• Services Australia – Deeming Rules