When you meet the retirement condition of release, you can usually choose to withdraw your super as either a:
Check with your super fund to find out your options.
The super withdrawal option you choose may affect the tax you pay (including tax on investment earnings) and the amount of money you have for your retirement.
Pensions and other benefits
If you’re retired or have turned 60, you may be eligible for tax offsets. This will depend on your income and assets, where your income comes from, and whether you’re fully or partly retired.
The relevant offsets are the:
- seniors and pensioners tax offset (only available if you qualify for the age pension)
- lump sum tax offset
- super income stream tax offset.
Other offsets you may be eligible for include:
- tax offset for super contributions on behalf of your spouse
- low and middle income earner tax offsets.
A super income stream is a series of regular payments from your super fund. If you receive income from an Australian super income stream, you may be eligible for a tax offset equal to:
- 15% of the taxed element
- 10% of the untaxed element.
The tax offset amount available to you on your taxed element will be shown on your PAYG payment summary – superannuation income stream.
The tax offset amount you can claim on your untaxed element will not be shown on your payment summary and is subject to a cap (see table).
Maximum tax offset
2017–18 to 2020–21
To work out if you can claim a tax offset on your untaxed element, use the Defined benefit income cap tool.
You can't claim a tax offset for the taxed element of any super income stream you receive before you reach your preservation age, except where the super income stream is either a:
- disability super benefit
- death benefit income stream.
You can't claim a tax offset for the untaxed element of any super income stream you receive before you turn 60 years old, unless:
- the super income stream is a death benefit income stream
- the deceased died after they turned 60 years old.
To claim the offset, see T2 Australian superannuation income stream tax offset.
If your super fund allows it, you may be able to withdraw some or all of your super in one or more 'lump sum' payments. However, if you ask your fund to make regular payments from your super it may be an income stream.
Once you take a lump sum out of your super, it is no longer considered to be super. If you invest the money, earnings on those investments are not taxed as super and may need to be declared in your tax return.
A super income stream involves a series of regular payments from your super fund (paid at least annually).
Your super income stream may be either:
- an account-based super income stream including:
- regular payments from a retirement phase account
- a transition to retirement income stream
- a market-linked pension that started on or after 1 July 2017
- a capped defined benefit income stream including
- a lifetime pension, regardless of when it started
- a lifetime annuity, life expectancy pension or annuity, or market-linked pension or annuity that existed before 1 July 2017
- an innovative retirement income stream
- a deferred lifetime product that did not meet the annuity and pension standards before 1 July 2017.
Super income streams (also known as pensions or annuities) are a popular option for retirees because they help you manage your income and spending. Depending on your circumstances, income streams may also have tax advantages.
An account-based income stream allows you to draw a regular income once you retire.
Your super fund normally continues to invest the money in your super account and adds returns from investments to your account. Your account balance fluctuates with market performance.
When you transfer super into a retirement phase account, investment earnings on funds in the account are not taxed.
There is a lifetime limit on the maximum amount you can transfer into one or more tax-free retirement phase accounts. This is your transfer balance cap.
Once you start your income stream you're unable to add more money to it. Make sure you have made all contributions (including rollover amounts) to your super provider before your income stream starts. Any contributions made after your income stream starts will be put into a new super account with your provider.
Income stream withdrawals and payments
Each year you can withdraw as much as you like through your account-based super income stream (unless you're receiving a transition to retirement income stream).
You must withdraw a minimum amount each year – based on your age and account balance – or the income stream stops, in which case there may be income tax implications.
The payments don't need to be at the same interval, and the amount paid may also vary. You must receive at least one payment every financial year.
If your provider's rules allow it, you can stop your income stream or change the amount of your regular payments. However, there may be income tax implications if you stop your income stream part way through the year.
You can continue to receive your super income stream until there is no money in your account.
If there is money left in your super account when you die, it may go to a dependant beneficiary you nominated to your super fund or it may become part of your estate (see Superannuation death benefits).
Example: account-based income stream
Danny turns 56 years old during 2016–17 and retires on 8 October 2016. He immediately starts an account-based income stream that he receives in monthly payments. He decides to take a partial commutation from his income stream in 2016–17.
Before he receives the partial commutation payment, Danny elects to treat his income stream benefit as a super lump sum for tax purposes. He has previously used $25,000 of his low rate cap in 2015–16; therefore $170,000 of this cap is still unused (see Superannuation death benefits).
On 29 August 2016, he receives the partial commutation of $28,000 from his self-managed super fund (SMSF). The lump sum has only a taxable component that was taxed in the fund. The fund does not withhold any tax from the payment.
Danny includes the $28,000 as assessable income in his 2016–17 tax return. He receives a super lump sum tax offset – which means that the rate of income tax on the lump sum is nil because the taxable component ($28,000) does not exceed his unused low rate cap.
Danny continues his income stream in 2017–18 and again decides to take a partial commutation payment. The partial commutation now meets the definition of a super lump sum and no election is required. He has previously used $53,000 of his low rate cap; therefore, $147,000 of the cap remains.
On 20 December 2017, he receives the lump sum payment of $25,000 from his SMSF. The lump sum has only a taxable component that was taxed in the fund. The fund does not withhold tax from the payment.
Danny includes the $25,000 as assessable income in his 2017–18 tax return. He receives a super lump sum tax offset – which means that the rate of income tax on the lump sum is nil because the taxable component ($25,000) does not exceed his unused low rate cap.
Danny’s commuted amount in 2017–18 does not count towards the minimum annual pension payment requirement for super income streams. To meet this requirement, Danny would also need to make sure he receives at least the minimum pension payments during the financial year.End of example
Transition to retirement income stream
Once you reach your preservation age you may be able to receive regular payments (an income stream) from your super provider while you continue working. You can do this by starting a transition to retirement income stream (TRIS). This will a0llow you to either:
- reduce your working hours without reducing your income
- continue working and salary sacrifice to boost your super.
There are restrictions on the amount you withdraw via a TRIS in a financial year. For example, if you're under 65 years old, until you’ve met a condition of release with a nil cashing restriction you must receive between 4% and 10% of the balance of money in your super account each financial year. (The minimum amount was reduced to 2% for the 2019–20 to 2022–23 years.)
Once you have met a condition of release with a nil cashing restriction (such as reaching preservation age and retiring or turning 65 irrespective of whether you're retired), you can access your super benefits in other ways and don't need a TRIS. In these cases, your provider will start paying you a normal account-based pension or you can take your benefit as a lump sum.
You can seek independent financial adviceExternal Link to help decide if a TRIS is right for you.
A TRIS must be an account-based income stream that can't be converted into a lump sum until the member meets a condition of release with nil cashing restrictions. This is called a non-commutable super income stream.
You don't have to advise your employer you're receiving a TRIS or advise your super fund you're receiving employment income.
You will need to decide from which payer to claim the tax-free threshold (on your Tax file number declaration). If you claim the tax-free threshold with both payers, you may end up with a tax liability at the end of the income year.
A TRIS is only treated as exempt current pension income and count towards your transfer balance account when it's in the retirement phase.
A TRIS moves into the retirement phase when the member meets one of the following conditions of release:
- reaches 65 years old
- retirement after reaching preservation age
- permanent incapacity
- terminal medical condition.
Satisfying a condition of release with a nil cashing restriction (as above) means that the pension is no longer subject to the restrictions that are generally characteristic of a TRIS.
A TRIS will move automatically to the retirement phase as soon as the member reaches 65 years old. For the other conditions of release listed above, the member needs to notify their super provider for the TRIS to move to the retirement phase.
For more information on when a TRIS is in the retirement phase see GN 2019/1 Changes to transition-to-retirement income streams.
Example: transition to retirement income stream
Jodi is 57 years old in 2016–17. In addition to her income from employment ($40,000 per year), she commences a TRIS from her self-managed super fund (SMSF) part-way through the financial year. Jodi receives three payments of $12,000. As she has received no previous super lump sums, the full $195,000 low rate cap is available to her (see Superannuation death benefits).
Jodi receives benefits totalling $36,000 in 2016–17, with tax-free components of $3,600, and taxable components (taxed in the fund) of $32,400.
Before she receives each payment, Jodi elects to treat her TRIS benefits as super lump sums for tax purposes.
In her 2016–17 tax return, Jodi:
- does not include the tax-free component of $3,600, as it is non-assessable non-exempt income
- includes the taxable component of $32,400 as assessable income
- receives a super lump sum tax offset which means that the rate of income tax on the lump sums is nil because the taxable component ($32,400) does not exceed her unused low rate cap.
Jodi continues to receive quarterly TRIS benefits in 2017–18, totalling $48,000. She is no longer able to make the elections to treat the TRIS benefits as super lump sums.
In her 2017–18 tax return, Jodi:
- does not include the tax-free component of $4,800, as it is non-assessable non-exempt income
- includes the taxable component of $43,200 as assessable income
- is taxed at her marginal tax rate
- receives a tax offset of 15%.
As Jodi has not met a nil cashing release, her SMSF would not be eligible for exempt current pension income on the TRIS.End of example
A defined benefit interest is generally an interest for which the benefits payable are defined by reference to a specified amount or formula. This is commonly the member's salary at a particular time or an average salary for a particular period.
These are generally fixed term or lifetime pensions and annuities.
Rather than drawing payments out of your super account, you have an agreement with your super provider that they will pay you a regular income, usually guaranteed for life or for a fixed term.
This type of income stream is generally paid from a government super scheme or life insurance company. It offers certainty by providing a fixed income over a set period of time.
If you're receiving a super income stream from a defined benefit interest, you should check with your super provider to determine if it is a capped defined benefit income stream.
If you have a capped defined benefit income stream, your provider will calculate and report to us the 'special value' of your income stream, and this value will count towards your transfer balance cap.
Capped defined benefit income streams include:
- lifetime pensions, regardless of when they commenced
- lifetime annuities that existed before 1 July 2017
- life expectancy pensions and annuities that existed before 1 July 2017
- market-linked pensions and annuities that existed before 1 July 2017.
Innovative retirement income stream products
Innovative retirement income streams include a range of lifetime products that did not meet the annuity and pension standards before 1 July 2017.
For a retirement product to be considered an innovative income stream it must meet the following conditions:
- Similar to an ordinary account-based income stream, the provider is not able to start paying benefits until you have met a nil cashing restriction condition of release. However, the difference with these products is that the start date for benefit payments is deferred until a later event, usually age-related. This is agreed on when you sign up for the product.
- Once benefit payments start, they must be made at least annually and be payable for your remaining lifetime (and any primary or reversionary beneficiaries). There can be no unreasonable deferral of payments from the income stream.
- There are restrictions on the amount that you can commute and take as a lump sum payment or rollover within the super system. These restrictions apply after the income stream enters the retirement phase and are based on a declining capital access schedule.
Tax on innovative retirement income stream products
Similar to other super income streams, a payment made from an innovative income stream is a super benefit. The tax treatment of benefits depends on several factors, including:
- your preservation age and the age you will be when you get the payment
- whether you have tax-free and/or taxable components in your super account.
Difference between an innovative income stream and an account-based income stream
There are several differences between an account-based income stream and an innovative account-based income stream. For innovative income streams:
- you still need to have either retired, turned 65 years old, have a permanent incapacity or have a terminal medical condition before benefits will be paid to you. The start date of your benefits is deferred until a later date. This date will be agreed on when you sign up for the product
- you will continue to receive benefits even if the original capital you invested is exhausted
- the amount you receive as a benefit payment is determined by the product and your contract with the provider, and you're not able to vary the amount
- the amount you are able to rollover or take as a lump sum is determined by a capital access schedule.
Innovative income streams count towards your transfer balance cap when they become a retirement phase income stream. This happens when you retire, turn 65, or have a permanent incapacity or a terminal medical condition, even if you have not yet started to receive benefits.
Any extra capital you add to your innovative income stream after it becomes a retirement phase income stream also count towards your transfer balance cap.
When a super income stream stops
Your super income stream stops when:
- there is no money left in your super account (though you may still have money in super outside of this account)
- a minimum annual payment is not made
- you convert a super income stream into a super lump sum (you commute it)
- you die, unless you have a dependant beneficiary who is automatically entitled to receive the income stream.
Other reasons your super income stream may stop will be set out in the governing rules of your super fund.
Minimum annual payment not made
Your super income stream stops for income tax purposes if your fund doesn't make the minimum annual payment.
If your fund makes the minimum annual payment the following financial year, a new income stream is taken to have started on 1 July of that year for income tax purposes. However, for it to be in retirement phase the super income stream must be commuted and a new superannuation income stream commenced.
What this means for you
If your fund doesn't make the minimum annual payment, your income stream is taken to have stopped at the start of that financial year. It will no longer be in retirement phase.
This means that all payments you have received during the financial year are treated as super lump sum payments for income tax purposes. You may have to pay additional tax (see Tax on super benefits). In addition, the earnings in your super account will cease to be tax free.
Commutation is the process of converting some or all of a super income stream into a super lump sum.
If the rules applying to your super income stream, and your provider allow, you can fully or partially commute your income stream to stop or change the amount of your income stream. You can then either:
- take a lump sum benefit in cash
- roll the lump sum back into an accumulation account
- roll the lump sum over to purchase one or more other super income streams.
Your super income stream stops when you request to fully commute your income stream payments to a lump sum payment.
The minimum annual payments rule still applies (on a pro-rata basis) to the income stream payments you receive before a full commutation. This amount is based on the number of days in the income stream payment period:
Minimum annual amount × (days in payment period ÷ days in financial year)
Partial commutations of an account-based pension don't count towards the minimum pension payment. Payment resulting from a partial commutation is treated as a lump sum for tax purposes.
After your death
Your super income stream stops when you die unless you have a dependant beneficiary and they're automatically entitled to receive the income stream.
Whether your income stream automatically transfers to your dependant depends on the governing rules of your super fund. The rules must specify who is entitled to receive the benefits and whether they will be paid as an income stream or lump sum.
The rules may give the trustee discretion to pay either a lump sum or income stream to a dependant beneficiary. If your fund's trustee has this discretion, your income stream does not automatically transfer and stops when you die. If the trustee ultimately decides to pay the relevant dependant beneficiary a super income stream, a new super income stream commences at that time.
What this means for you
You should contact your super fund to check how the rules apply when you die and if your dependant is automatically entitled to receive a super income stream.
For more information, see Superannuation death benefits.
There is a lifetime limit on the amount you can transfer into one or more tax-free retirement phase accounts. This is called your transfer balance cap.
You can start multiple super income streams in retirement phase as long as you remain below the cap. The balance of all your super income streams in retirement phase are taken into account when working out the total of your interests transferred into retirement phase.
For the purpose of the transfer balance cap, your retirement phase interests:
- include all of your retirement phase income streams, including capped defined benefit income streams and market linked pensions
- do not include interests in foreign super funds or entitlement to the age pension (or other types of government payments)
- are recorded in your transfer balance account.
When you start a retirement phase income stream for the first time, you will have a personal transfer balance cap equal to the general transfer balance cap at that time. From 1 July 2023, this is $1.9 million.
If you had a retirement phase income stream before 1 July 2023, your personal transfer balance cap will be:
- if you exceeded your transfer balance cap at any time between 1 July 2017 and 30 June 2023, your transfer balance cap that applied at the date at which you first exceeded it.
- in all other cases, between $1.6 and $1.9 million, based on the highest ever balance of your transfer balance account.
The general transfer balance cap, on which your personal transfer balance cap is based, is increased in line with the consumer price index in $100,000 increments.
In ATO online services you can view your personal transfer balance cap and your transfer balance account (including any excess over your cap), which records all the debits and credits that make up your balance.
- sign in to myGovExternal Link
- select Australian Taxation Office
- select Super, then Information, then Transfer Balance Cap.
If you don't have a myGov account, create one and link it to the ATO.
For more information on how your cap is worked out, see Calculating your personal transfer balance cap.
If you exceed your personal transfer balance cap, you need to reduce the excess in your transfer balance account and pay excess transfer balance tax.
If you're a beneficiary of a death benefit income stream, see Superannuation death benefits for more information.
Defined benefit income caps
The transfer balance rules apply differently if you receive a capped defined benefit income stream. You usually can’t transfer or remove excess amounts from these income streams.
The defined benefit income cap applies to income received from capped defined benefit income streams. The defined benefit income cap is set at $118,750 for the 2023–24 income year. It increases over time based on indexation of the general transfer balance cap.
The defined benefit income cap may be reduced in some circumstances, including if you:
- are receiving a capped defined benefit income stream and turn 60 years old part-way through the year, and therefore start receiving concessional tax treatment for that income
- start a capped defined benefit income stream with concessional tax treatment for the first time, part-way through the year
- start receiving a death benefit (reversionary) defined benefit income stream with concessional tax treatment part-way through the year.
Capped defined benefit income streams are subject to additional income tax rules where either:
- the recipient is 60 years old or older
- a dependant receives death benefits from a deceased person 60 years old or older.
For more information, see Transfer balance cap – capped defined benefit income streams.The difference between a lump sum withdrawal of super and a retirement income stream, and the tax consequences.