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How Pension income is taxed

The way your pension income is taxed depends on your age.

Age Tax on pension payments Tax on lump sum withdrawals
60+ years Tax free Tax free
55-59 years PAYG rate* on taxable portion, Less 15% pension offset First $150,000 tax free. Balance at 15%*
Under 55 years PAYG rate on taxable portion  Taxed at 20%*

 * Plus Medicare levy

Age 60 and over
Once you reach age 60, you will pay no tax on your pension, whether you receive regular income payments or withdraw any lump sum amounts. You also won’t have to declare your pension as assessable income when you lodge a tax return.

55-59 years of age
Your pension payments will be subject to income tax. However, some of your pension payment may be tax-free and you will receive a 15% tax offset on the taxable proportion of your payments.

The tax-free component is that part of your pension that is not subject to income tax.

It comprises the sum of:

  • any non-concessional (i.e. after-tax) contributions you have made;
  • any Government co-contribution amounts;
  • your pre-July 1983 benefits, calculated at 30 June 2007;
  • any CGT exempt component; and
  • certain amounts of disability benefits received before 1 July 2007 (post 1 June 1994 invalidity component)

The taxable component is that part of your pension that is subject to income tax.

It comprises the sum of:

  • any concessional (i.e. before-tax) contributions, including employer SG and salary sacrifice amounts;
  • any personal contributions where you have claimed a tax deduction; and
  • any investment earnings.

Any tax payable will be at your applicable PAYG rate.

Check your Annual Member Statements or contact your Fund for a breakdown of your taxable and tax-free components.

Under 55 years of age
If you are under 55 years of age, your pension payments are subject to income tax and you are not eligible for the 15% tax offset.

However, if the pension account was established using proceeds from a death benefit received from a super fund, pension payments are taxed on the same basis as pension payments paid to members between 55-59 years.