The superannuation pension phase is the stage of your super where the money stops sitting in an accumulation account and starts paying you a regular retirement income, with investment earnings inside the account taxed at zero rather than 15%. For the 2026–27 financial year, you can move up to $2.1 million of super into this tax-free environment.1Australian Taxation Office. Transfer Balance Cap To get there you need to meet a condition of release, pick the right income stream, stay under the cap, and take at least the minimum payment each year.
When You Can Start a Pension
Before your super can pay you anything, you have to satisfy a “condition of release” under the Superannuation Industry (Supervision) Regulations 1994. For most people that means reaching preservation age and retiring, or simply turning 65.
Preservation age depends on your date of birth:
- Born before 1 July 1960: 55
- 1 July 1960 to 30 June 1961: 56
- 1 July 1961 to 30 June 1962: 57
- 1 July 1962 to 30 June 1963: 58
- 1 July 1963 to 30 June 1964: 59
- Born from 1 July 1964: 60
Reaching preservation age is only half the trigger. You also need to retire, which in super law means declaring you do not intend to work more than 10 hours a week again. At 65 the declaration is no longer required. Age 65 unlocks full access whether you keep working or not.2Australian Taxation Office. Conditions of Release
Two other conditions of release let people access super earlier, but they are narrow. Permanent incapacity requires the trustee to be satisfied that illness or injury makes it unlikely you will ever return to work you are reasonably qualified for. Severe financial hardship requires an extended period on eligible government income support and, for those under preservation age plus 39 weeks, caps withdrawals between $1,000 and $10,000 per year.3Australian Taxation Office. When You Can Access Your Super Early Neither is a normal route into a retirement pension.
Account-Based Pension or Transition to Retirement
Once you meet a condition of release, you have to choose how your super pays you. There are two main structures.
An account-based pension is the standard retirement product. It becomes available once you meet a full condition of release, such as retiring after preservation age or turning 65. The balance you nominate transfers into a pension account, you draw a flexible income, and the remaining balance stays invested with earnings taxed at zero.
A transition to retirement income stream (TRIS) is for people who have hit preservation age but are still working. You can draw an income, but you cannot withdraw more than 10% of the account balance in a financial year and you cannot take lump sums. Earnings on assets supporting a TRIS are taxed at 15%, the same as accumulation phase, not zero.4Australian Taxation Office. Transition to Retirement Income Streams (TRIS) When you later meet a full condition of release the TRIS converts to a standard retirement-phase pension, the 10% ceiling drops, and earnings become tax-free.
The $2.1 Million Transfer Balance Cap
The government limits how much super you can move into the tax-free pension phase. The general transfer balance cap for 2026–27 is $2.1 million.1Australian Taxation Office. Transfer Balance Cap Anything above your personal cap has to stay in accumulation, where earnings are taxed at 15%.
If you are starting your first retirement-phase pension, your personal cap equals the general cap at that time. If you already started a pension in an earlier year, your personal cap is calculated from the highest-ever balance in your transfer balance account: the ATO works out the unused percentage of your previous cap and applies that percentage to any indexation increase. If your highest-ever balance ever reached or exceeded your personal cap, you get no indexation.5Australian Taxation Office. Calculating Your Personal Transfer Balance Cap
The ATO tracks all of this through a transfer balance account. Starting a pension records a credit; commuting money back out records a debit. If you exceed your cap, the ATO taxes the notional earnings on the excess at 15% the first time and 30% for any later breach.6Australian Taxation Office. Excess Transfer Balance
How Much You Have to Withdraw Each Year
The pension phase comes with a minimum drawdown. Each financial year you must withdraw at least a set percentage of your account balance as at 1 July, and the percentage rises with age. The standard rates in effect from 1 July 2023 onward are:7Australian Taxation Office. Payments From Super
- Under 65: 4%
- 65 to 74: 5%
- 75 to 79: 6%
- 80 to 84: 7%
- 85 to 89: 9%
- 90 to 94: 11%
- 95 or older: 14%
Miss the minimum in a financial year and the account can lose its tax-exempt status on investment earnings for that whole year. It is one of the most expensive mistakes in the pension phase.
If your pension starts partway through the year, the minimum is pro-rated: the standard annual amount multiplied by days remaining in the financial year, divided by 365 (or 366 in a leap year), rounded to the nearest $10. If the pension starts on or after 1 June, no minimum is required that year.8Australian Taxation Office. Income Stream (Pension) Rules and Payments
How Pension Payments Are Taxed
Tax on your pension income depends on your age and on whether your super sits in a taxed or untaxed fund. Most Australians are in taxed funds.
From age 60, income from an account-based pension paid from a taxed fund is completely tax-free. You do not include the taxed element or the tax-free component in your tax return.9Australian Taxation Office. Tax on Super Benefits This is the core tax advantage of the pension phase.
Between preservation age and 60, the taxed element of your pension is taxed at your marginal rate, but you receive a 15% tax offset. The tax-free component stays tax-free at any age.
Untaxed funds, typically certain government or defined benefit schemes, work differently. You may receive a 10% tax offset on the untaxed element, subject to caps. For 2026–27 the maximum offset on the untaxed element is $13,125, and the defined benefit income cap is $131,250.10Australian Taxation Office. Retirement Withdrawal – Lump Sum or Income Stream
What Happens to Your Pension When You Die
The people who can receive your super death benefit are set by superannuation law. A dependant (your spouse or de facto partner, a child of any age, or someone in an interdependency relationship) can take the benefit as a lump sum, an income stream, or a mix. Anyone who is not a dependant must take it as a lump sum. Children can only receive an ongoing income stream if they are under 18, under 25 and financially dependent on you, or have a permanent disability, and an adult child on a pension must convert it to a lump sum by age 25.11Australian Taxation Office. Superannuation Death Benefits
You choose between two main nomination structures. A reversionary pension names someone (usually your spouse) to automatically take over the pension when you die. Payments never stop, and the balance does not count against the beneficiary’s own transfer balance cap for 12 months, giving them room to reorganise.12Australian Taxation Office. Transfer Balance Account A binding death benefit nomination is more flexible: you can direct the benefit to multiple people or to your estate, but the pension stops on death and any new pension the beneficiary starts counts against their cap immediately.
Tax on the payout depends on whether the recipient is a dependant for tax purposes, which is a narrower group than the superannuation definition. Tax dependants include your spouse, former spouse, a child under 18, someone in an interdependency relationship, or anyone financially dependent on you. Death benefits to tax dependants are tax-free. Non-dependants pay 17% (including Medicare levy) on the taxed element and 32% on the untaxed element.13Australian Taxation Office. Schedule 12 Tax Table for Superannuation Lump Sums The trap most families miss: an adult child who is not financially dependent is a dependant under super law but a non-dependant for tax, so they can inherit your super but face a real tax bill on it.
Your Super Pension and the Age Pension
If you apply for the government Age Pension through Services Australia, your account-based pension balance is assessed under both an assets test and an income test. Whichever produces the lower payment is the one that applies.
Under the assets test, as at 20 March 2026, a single homeowner can hold up to $321,500 in assessable assets and still get the full Age Pension, and a homeowner couple up to $481,500 combined. The pension cuts out entirely at $722,000 for a single homeowner and $1,085,000 for a homeowner couple. Non-homeowners have higher thresholds.14Services Australia. Assets Test for Age Pension
For account-based pensions started from 1 January 2015, the income test ignores your actual payments and instead applies deeming rates to your financial assets, including your pension balance. As at 20 March 2026, the first $64,200 of a single person’s financial assets is deemed to earn 1.25%, with 3.25% on the rest. For couples where at least one partner receives a pension, the lower rate applies to the first $106,200. Actual returns above the deemed rates do not count against your entitlement.15Services Australia. Deeming
Extra Rules for SMSFs
If you run a self-managed super fund, the pension phase brings compliance the members of large APRA-regulated funds never deal with directly. A registered SMSF auditor must audit your fund each year, checking both the financial statements and compliance with the super rules.16Australian Securities & Investments Commission. Self-Managed Superannuation Fund (SMSF) Auditors You also need to make sure pension payments actually leave the fund by 30 June and are documented properly. Falling short on the minimum drawdown or failing to segregate pension assets correctly can strip the tax-free status from the fund’s earnings for the entire financial year.