A retiree checking their annual superannuation statement not long after their 60th birthday often notices something curious: the tax withheld on their pension payments has dropped to nil. It isn’t an error. Turning 60 is the point at which most income drawn from superannuation stops being taxed altogether.
Knowing exactly what changes at that birthday, and what doesn’t, matters for anyone working out their tax position in retirement. Superannuation income becomes tax-free from 60, but the Age Pension, wages and investment earnings held outside super are still counted as taxable income, and confusing the two can catch a retiree out at tax time.
What actually turns tax-free at 60?
For members of a standard taxed superannuation fund, the type most Australians belong to, turning 60 means income received from a super income stream, such as an account-based pension, is generally entirely free of tax. Lump sum withdrawals from super are treated the same way once someone reaches 60: they are also generally tax-free.
Before that birthday, the picture is more complicated. Someone who has reached their preservation age but is still younger than 60, broadly the 55 to 59 age band, has their income payments split into two parts: a taxable component, taxed at their marginal rate, and a tax-free component. Only once they turn 60 does that split disappear and the whole payment become tax-free.
What still counts as taxable income after 60?
Turning 60 doesn’t mean every dollar in retirement escapes tax. The Age Pension, income from paid work and earnings from investments held outside super are all still generally included in taxable income, whatever the retiree’s age. A retiree drawing only an account-based pension from a taxed fund typically has no tax liability on that income stream, but the moment they add the Age Pension, rental income or part-time wages, those amounts are added to their assessable income for the year.
What is the low rate cap, and who does it affect?
The low rate cap is a lifetime limit on how much of a lump sum withdrawal receives a reduced or nil tax rate, and it applies only to people older than their preservation age but not yet 60. From 1 July 2026 the cap is set at $260,000, a fixed figure replacing the previous system of annual indexation. For the 2024-25 income year the cap sat at $245,000, up from $235,000 in 2023-24, having risen from $145,000 back in 2008-09.
It is a lifetime cap rather than an annual one, so any amount already claimed against it in the past reduces what is left. Once a person turns 60, the low rate cap becomes irrelevant to them, because their lump sum withdrawals are already tax-free without needing to draw on it.
What is a transition to retirement income stream?
Some people reduce their working hours before stopping altogether, and superannuation rules allow for this through a transition to retirement income stream, known as a TRIS. It lets someone who has reached preservation age draw a non-commutable income stream from their super while still working reduced hours, without needing to take a lump sum. Employers must keep making compulsory super guarantee contributions for an employee on a TRIS, so contributions continue even as income is drawn down.
The trade-off is flexibility. Because a TRIS is non-commutable, it cannot be converted into a lump sum while the person is still working, which sets it apart from a standard account-based pension available once someone has stopped work entirely.
Does every superannuation fund follow the same rules?
Not quite. The tax-free treatment from age 60 applies to taxed super funds, which cover the large majority of members. Untaxed funds, including some public sector schemes and constitutionally protected funds, follow different tax rules, so the blanket tax-free position at 60 doesn’t automatically extend to everyone.
A common misunderstanding is that turning 60 makes all retirement income tax-free. It doesn’t. The tax-free treatment is specific to payments from taxed superannuation funds, and Age Pension payments, wages and investment income sit outside that rule entirely.
Age Pension rates and thresholds are reviewed and indexed each year on 20 March and 20 September, so current payment figures shift through the year. Anyone wanting to confirm the low rate cap, current Age Pension rates, or how their own super components are calculated can check the figures through Services Australia, the Australian Taxation Office (ATO) or MoneySmart, or with a tax professional.
For most people who reach 60 with their super sitting in a standard taxed fund, the arithmetic of retirement becomes simpler rather than harder: one part of the ledger, the super pension or lump sum, drops off the tax bill entirely, leaving only the Age Pension, wages or investment income left to account for. One less line on the tax return, and one more reason the 60th birthday is worth marking properly.
