Superannuation at Age 60: What Becomes Tax-Free and What Remains Taxable

The milestone of age 60 on Superannuation

Turning 60 is one of the most significant milestones in Australia’s retirement and tax system. It marks a point where superannuation can shift from being a long-term savings vehicle into a powerful source of tax-free income if it’s structured correctly.

Many Australians assume that once they turn 60, their super automatically becomes tax free. The tax outcome depends on several factors, including how your super is held, how it’s withdrawn, and whether you’ve met a condition of release. Understanding these rules can make a substantial difference to your retirement income and long-term financial security.

Why Age 60 Matters

Under Australia’s superannuation framework, age 60 is the point at which most super benefits can become tax free. The tax-free treatment only applies when withdrawals come from a taxed super fund and certain conditions are met.

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 included in your taxable income

This rule exists because tax has already been paid within the super system during your working life. Contributions and earnings are taxed at concessional rates, and the policy intent is to avoid taxing retirement income again.

For many retirees, this means they may receive $40,000, $60,000 or even $100,000 per year from super and still lodge a tax return showing zero taxable income.

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

Once you meet a condition of release, your super can be converted into an account-based pension. From age 60 onwards, pension payments from a taxed super fund are not assessable income and are not taxed.

After turning 60:

• Pension payments are completely tax free
• They don’t need to be declared as income
• They don’t affect your personal tax rate

This is where many retirees gain the greatest benefit. Tax-free income streams can significantly improve cash flow while preserving capital.

Importantly, tax-free pensions are not just for people with large balances. Even modest super balances can:

• Provide tax-free income
• Reduce reliance on the Age Pension
• Improve lifestyle sustainability

The issue is rarely how much super you have, it’s how it’s used.

Lump Sum Withdrawals After 60

Lump sum withdrawals from a taxed super fund after age 60 are also generally tax free. These withdrawals are often used to:

• Clear mortgages or personal debt
• Renovate or downsize
• Help adult children
• Build personal investment portfolios

However, this is where the “tax-free” label can be misleading.

While the withdrawal itself may not be taxed, once money leaves super it loses its concessional tax environment. Any future investment earnings on that money may become taxable. Large lump sums can also affect Age Pension eligibility under Centrelink’s rules.

In many cases, a pension strategy can provide better long-term outcomes than withdrawing large amounts at once.

Still Working After 60? Structure Matters

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

In general:

• If you’re 60+ and retired, tax-free super generally applies
• If you’re 60+ and still working, the tax treatment depends on the structure

For example:

• Transition-to-retirement pensions before age 60 are taxable
• After age 60, pension payments typically become tax free
• Lump sums may still require a condition of release

The rules are nuanced, and getting the structure wrong can quietly reintroduce tax.

The $2 Million Transfer Balance Cap

There is a limit on how much super can be transferred into the tax-free pension phase. For the 2025–26 financial year, the transfer balance cap is $2 million.

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

This cap doesn’t only affect the “wealthy”. It can impact:

• Couples combining super balances
• SMSFs holding property
• Long-term contributors who started early
• People who receive inheritances into super

Exceeding the cap can trigger additional tax and forced restructuring, making forward planning essential.

Super and the Age Pension Are Different Systems

A common misconception is that if super income is tax free, it won’t affect Centrelink. Unfortunately, that’s not how the system works.

While super pensions may be tax free, they are still assessed under:

• The assets test
• The income test (using deeming rules)

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

Estate Planning, Super and Taxes After Death

Super may be tax free during your lifetime, but that doesn’t always apply to your beneficiaries.

• Spouses and dependants usually receive super tax free
• Adult non-dependants may pay up to 15% tax plus Medicare levy

Poor estate planning can result in significant, and often unexpected, tax leakage when wealth is transferred to the next generation.

Often 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. Leaving money in accumulation when it could be in pension phase can quietly erode your balance through unnecessary tax
• How you withdraw money matters as much as when. Lump sums may be tax free initially but can create ongoing tax outside super
• Super doesn’t exist in isolation. Age Pension rules, cash flow, and long-term sustainability all matter
• Not all super is treated the same. Older or untaxed schemes can produce very different outcomes
• Estate planning can reintroduce tax if not structured correctly

When retirement income is planned properly, superannuation delivers more than tax efficiency. It provides clarity, confidence, and peace of mind knowing your income is working with the system, not against it. If you have questions about your super contact Cashflow Financial today, we are here to help.