Tax and your pension

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Did you know starting a pension may offer you some tax benefits?

Tax on pension income

BEFORE AGE 60

Your pension income is made up of taxable and tax-free components. The taxable component of your pension payments will be included in your assessable income and taxed at your marginal income tax rate, plus the Medicare levy.

We’ll work out the amount of tax you need to pay on your pension income and take out the required amount before we deposit your pension into your bank account. We’ll then pay your tax to the ATO. If you’ve reached your preservation age, a 15% tax offset is available to reduce tax payable on the taxable component.

Each year we’ll send you a PAYG Payment Summary to lodge with your tax return. If we don’t have your tax file number, we may be required to deduct tax at a higher rate.

AFTER AGE 60

Depending on your circumstances, you may be required to pay some tax on your pension. If you hold a Flexi Pension under a transition to retirement (TTR) strategy, you will pay tax on the earnings on your investments like you would on a super account.

You could also pay tax on your pension under the following circumstances:

  • Flexi Pension: if your account balance is over your general transfer balance cap ($1.6 million for the 2019-20 financial year). Tax will apply on the notional earnings on the excess amount.1
  • Defined Benefit Indexed Pension or Commercial Rate Indexed Pension: if you receive an annual income above $100,000. From 1 July 2017, 50% of your pension that exceeds the $100,000 annual cap will count towards your assessable income and is taxed at your marginal rate.1

1All pension accounts you hold (excluding a Flexi Pension under the transition to retirement rules) contribute towards the transfer balance cap, including Flexi Pensions and indexed pensions (such as our Defined Benefit Indexed Pension and Commercial Rate Indexed Pension). For more information, refer to the relevant PDS.

Tax on pensions is complex.
We recommend you seek advice from a taxation specialist.

Tax on lump-sum withdrawals

Tax on lump-sum withdrawals only applies if you’re under 60 and have a Flexi Pension.
There are restrictions, however, to lump-sum withdrawals from a Flexi Pension taken under the transition to retirement rules.

You can’t make lump-sum withdrawals from indexed pensions.

Before age 60

If you make a lump-sum withdrawal from your Flexi Pension, the withdrawal may include taxable and tax-free components in the same proportions as your entire benefit. You must make all lump-sum withdrawals on this basis. 

If you’re under your preservation age when you take your lump-sum benefit, tax will generally be levied on the entire amount of your taxable component at a rate of 22% (including the Medicare levy).

If you’re between your preservation age and 60, you’ll pay tax on the taxable component of your lump-sum withdrawal that exceeds the low-rate cap. (You don’t pay any tax on the tax-free component of a lump-sum withdrawal). The low-rate cap for the 2019-20 financial year is $210,000. If you make lump sum withdrawals in excess of this threshold, you’ll be taxed at a maximum rate of 17% (including the Medicare levy if you’ve provided us with your tax file number).

If we don’t have your tax file number, we may be required to deduct tax at a higher rate.

After age 60

All lump-sum withdrawals from your Flexi Pension are tax free.

Find out more in:

Tax on death benefits

If you have a Flexi Pension or an indexed pension, there are various taxes that apply to your death benefit. Find out more in ‘Tax on death benefits’ in the relevant Your guide to pensions PDS

Get help

Talk to UniSuper Advice on 1800 823 842 to find out how they can help you.