Superannuation is often talked about as one big bucket of savings, but how your super is treated — particularly for tax — changes significantly over time. One of the most important concepts to understand as you approach retirement is the difference between accumulation phase and pension phase.
Knowing how these phases work, and when to move between them, can have a major impact on your retirement income and tax position.
What Is Accumulation Phase?
The accumulation phase is the stage most Australians are in throughout their working life.
During this phase:
- Employer contributions (Super Guarantee) are added to your super
- You may make personal or salary sacrifice contributions
- Your balance grows through investment returns
Tax in Accumulation Phase
- Contributions are generally taxed at 15%
- Investment earnings within super are taxed at up to 15%
- Capital gains on assets held longer than 12 months may be taxed at an effective 10%
While this is still tax-effective compared to investing outside super, tax is being paid inside the fund.
What Is Pension Phase?
Once you reach preservation age and meet a condition of release (such as retirement), you can move some or all of your super into pension phase (also known as retirement phase).
In pension phase:
- Your super is converted into an income stream
- You receive regular payments to support your retirement lifestyle
Tax in Pension Phase
This is where the real advantage lies:
- Investment earnings are tax-free
- Capital gains are tax-free
- Pension payments are:
- Tax-free after age 60
For many retirees, this means their super is effectively operating in a tax-free environment.
The Transfer Balance Cap
There is a limit on how much super you can move into pension phase. This is known as the Transfer Balance Cap, currently $2 million (indexed over time).
- Amounts above the cap must remain in accumulation phase
- Earnings on amounts above the cap continue to be taxed at up to 15%
This makes structuring your super correctly especially important for those with higher balances.
Transition to Retirement (TTR)
If you’re still working but approaching retirement age, a Transition to Retirement (TTR) strategy may be available.
A TTR pension allows you to:
- Access a limited income stream from your super
- Potentially reduce tax while continuing to work
- Smooth the transition from full-time work into retirement
However, earnings on assets supporting a TTR pension are not tax-free until you fully retire, which is why advice is critical before implementing a TTR strategy.
Why the Difference Matters
The move from accumulation to pension phase is not automatic — and getting the timing wrong can result in:
- Paying unnecessary tax
- Missed opportunities to maximise retirement income
- Poor Centrelink outcomes
This decision also interacts with:
- Contribution strategies
- Age Pension eligibility
- Estate planning outcomes
How MLS Financial Can Help
At MLS Financial, we help clients:
- Understand when they are eligible to move into pension phase
- Decide how much super to transfer and when
- Structure retirement income to maximise tax efficiency
- Align super strategies with Centrelink and estate planning goals
Every retirement journey is different, and the right strategy depends on your income needs, super balance, and long-term goals
Written by:
Adrian Guy – BBus (Finance & Economics), MLS Financial
Disclaimer:
This information is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider speaking to a qualified financial planner before making any financial decisions. MLS Financial and Infocus Securities Australia Pty Ltd do not accept responsibility for actions taken based on this content.