Super Tax Rules: Accumulation vs Pension Phase

Quick Look

Focus: How super is taxed differently before and after retirement—and why it matters.

Key Takeaways :

Super is taxed at 15% in the accumulation phase—and 0% on most earnings in pension phase.
There’s a cap on how much can move into pension phase tax-free (currently $1.9million).
Once in pension phase, you’re required to withdraw a minimum amount each year.
Reading Time:≈5minutes

Introduction

Superannuation is one of the most tax-friendly ways to save for retirement in Australia. But the rules—and the benefits—change depending on whether you’re still building your balance (accumulation phase) or drawing an income (pension phase).

Getting the tax treatment right can make a significant difference to your retirement income. Let’s unpack the key differences, caps, and conditions—so you can have smarter conversations with your adviser or fund.

Context & Problem

Super tax rules are generous—but also complex. Most Australians know super is “low tax” ,but not everyone understands how the rules change when you retire.

In accumulation phase, your super is still growing—and taxed at up to 15% on contributions and earnings. Once you retire and start a retirement income stream (like an account-based pension), your super can become tax-free.

However:

There’s a limit on how much can be moved into this 0% tax zone
There are rules about how much you must withdraw
Getting it wrong can lead to extra tax or compliance issues

Understanding these rules helps you avoid unnecessary tax—and make the most of your hard-earned super.

Strategy & How To

1. Accumulation Phase—While You’re Saving

This is the default phase for most working Australians. You’re adding to super via employer contributions, salary sacrifice, or personal contributions.

Tax rules in this phase:

Contributions tax: 15% on concessional (pre-tax) contributions. The concessional contributions cap is $30,000 per year(ATO, updated 1 July2024)
Investment earnings tax: Up to 15% on income and capital gains on assets held longer than 12 month’s pay 10%tax

2. Transition to Retirement—Ability to Draw a Pension

To move to a transition pension phase, you must meet a condition of release such as:

Reaching your preservation age (between 55 if born prior to 1960 which transitions to 60if born after 1964)
Is irrespective of continuing to work in your normal occupation

3. Pension Phase—Retirement Income Stream Begins

To move to pension phase, you must meet a condition of release such as:

Reaching your preservation age (between 55 if born prior to 1960 which transitions to 60if born after 1964)
Ceasing a specific type of employment after age 60
Turning 65 (even if still working in your usual occupation)

In this phase, you draw a regular income and enjoy major tax benefits.

Tax rules in pension phase:

Earnings tax: 0% on investment earnings and capital gains
Withdrawals: Tax-free if you’re over 60
Transfer Balance Cap
This limits how much you can move into the 0% tax pension phase
As at 1 July 2023, the cap is$1.9 million per person
Any excess stays in accumulation and is taxed at 15%

4. Minimum Drawdown Rules

You must withdraw a minimum percentage of your pension account each year:

Age Minimum % of balance (2024–25)
Under 65, 4%. 65-74, 5%.
Age Minimum %of balance(2024–25)
75–79, 6%. 80–84, 7%. 85–89, 9%. 90–94, 11%. 95+, 14%

(These rates are set by the ATO and can change with economic conditions.)

5. Managing the Mix

You can hold both accumulation and pension accounts at the same time. For example, if your total super is $2.2 million, you could:

Transfer $1.9 million into pension phase (0% tax on earnings)
Leave $300,000 in accumulation (earnings taxed at 15%)
This approach helps you manage tax and withdrawal needs.

Common Questions & Misconceptions

Is all my super tax - free once I retire?

No—only the pension phase account (up to your cap) earns tax-free returns. The rest stays taxed at 15%.

What happens if I go over the $1.9 million cap?

The excess must remain in accumulation phase. If you accidentally exceed the cap when commencing the pension, the ATO may require a refund and apply penalties. However, it is acceptable for the pension account to grow to be more than the cap if earnings are greater than pension drawings.

Can I stop minimum pension withdrawals if markets crash?

Yes—but the account is then treated as accumulation and incurs the 15% tax on earnings if minimum drawdowns are not met. In severe downturns, the government may temporarily reduce the rates (as seen during COVID-19 when rates were dropped to half the normal).

Do I pay tax on withdrawals?

If you’re aged 60 or over, withdrawals from a taxed super fund are typically tax-free.

Conclusion

Understanding the difference between accumulation and pension phase is key to getting the most out of your super.
You don’t need to be an expert, but knowing the rules—like the 15% contributions tax, 0% earnings in pension phase, and the $1.9 million cap—helps you make smarter choices.

And when the time comes to retire, the right strategy can mean more income in your pocket and less going to the taxman.

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Disclosure: General information only. Consider your objectives, financial situation and needs, and seek professional advice before acting.

Review & Fact Check

1. Fact References

Contributions tax and investment earnings rates: ATO–Super tax basics (ato.gov.au)
Transfer balance cap of$1.9million: ATO–Transfer balance cap (updated1July2023)
Minimum drawdown rates: ATO–Minimum annual payments for account-based pensions

2. Unverified or Inconclusive Items

Projected investment strategies or balances—illustrative only

3. Time Sensitivity

Transfer balance cap and concessional caps updated 1 July annually—check ATO for latest figures
Drawdown rates can be temporarily adjusted by government policy

4. Bias Assessment

Article is neutral and educational. Mentions services (Money GPS and Planning IQ) in a clearly disclosed context, with no financial product promotion.