A new study has revealed that 700,000 Australian retirees are paying more tax on their superannuation than necessary, potentially losing up to $9,000 over their retirement.
The costly mistake? Failing to move their superannuation funds from the accumulation phase to the retirement (pension) phase once they reach eligibility.
According to the Super Members Council (SMC), many retirees remain unaware that they can shift their superannuation to a tax-free account, leading to unnecessary taxation on their retirement savings.
How Superannuation Phases Work
Superannuation in Australia operates in two key phases:
- Accumulation Phase
- Superannuation contributions grow through investments.
- Earnings in this phase are taxed at 15%.
- This is where most people’s super remains while they are working.
- Retirement (Pension) Phase
- Once a person reaches preservation age (between 55 and 60, depending on birth year) and retires, they can move their super into a pension account.
- Investment earnings in this phase are tax-free for balances up to $1.9 million.
The key financial error many retirees make is leaving their money in the accumulation phase after retirement – continuing to pay 15% tax on investment earnings that could otherwise be tax-free.
How This Mistake Costs Retirees $9,000
The Super Members Council estimates that retirees who keep their super in an accumulation account unnecessarily pay an average of $650 per year in extra tax.
Over a 14-year retirement, this adds up to a staggering $9,000 in avoidable tax payments for someone with a $200,000 super balance.
Collectively, retirees who make this mistake hold an estimated $90 billion in accumulation accounts, all subject to the 15% tax on earnings instead of the tax-free pension phase benefits.
Why Are So Many Retirees Overpaying in Super Tax?
1. Lack of Awareness
Many retirees don’t realise they need to actively transition their super from the accumulation phase to the pension phase. It doesn’t happen automatically upon retirement.
2. Financial Inertia
Changing superannuation accounts requires effort, and many retirees don’t take action because of perceived complexity or procrastination.
3. Poor Financial Advice Access
Many Australians don’t seek professional financial advice when retiring, missing out on superannuation tax-saving strategies.
4. Misconceptions About Superannuation Rules
Some retirees believe they need to withdraw their super to avoid tax, rather than transitioning it into a tax-free pension account.
What the Government Is Doing to Help
Recognising the financial burden on retirees, the Australian Government has introduced reforms to improve access to financial advice and superannuation guidance.
The Delivering Better Financial Outcomes Package (Announced in December 2024)
- New Category of Financial Advisers – To provide low-cost, simple financial guidance for retirees.
- Super Funds Can Offer More Advice – Superannuation funds will be allowed to give members more direct support and personalised guidance about transitioning to the pension phase.
- Mandatory Superannuation Service Standards – Faster processing times for superannuation withdrawals and transitions to prevent financial delays for retirees.
How Retirees Can Avoid Paying Extra Super Tax
Step 1: Check Your Super Fund Type
Log in to your superannuation account or contact your provider to check whether your super is in the accumulation phase or retirement (pension) phase.
Step 2: Convert Your Super to a Pension Account
If you have reached the preservation age and are retired, consider moving your super into a pension account to take advantage of the tax-free earnings benefits.
Step 3: Seek Financial Advice
Consult with a financial adviser or superannuation specialist to ensure you’re making the best decisions for your retirement savings.
Step 4: Stay Informed on Superannuation Policy Changes
Superannuation rules and tax thresholds change regularly. Keep updated via trusted sources like:
🔹 Australian Taxation Office (ATO)
🔹 Super Members Council (SMC)
🔹 Services Australia
Final Thoughts
Failing to move superannuation savings from the accumulation phase to the pension phase is costing Australian retirees thousands of dollars in unnecessary taxes.
- 700,000 retirees are paying more tax than they should – and many are unaware of it.
- Making a simple superannuation change could save up to $9,000 over retirement.
- The government is implementing new reforms to provide better financial advice for retirees.
If you or a loved one are retired but still have super in an accumulation account, it’s time to take action. A simple switch could mean thousands of dollars in savings for a more comfortable retirement.
For personalised superannuation guidance, visit: Australian Financial Complaints Authority (AFCA)
A senior at Yale-NUS College with interests in developmental and labour economics, as well as creative non-fiction and poetry. Currently, I’m studying as an Economics major and an Arts and Humanities minor (focusing on Creative Writing) with heavy involvement in the Singaporean journalism scene and involved in research on economic history and educational policy. I’m working as an author for The Octant, Yale-NUS’ student publication, as a writer for Wingspan, Yale-NUS’ alumni magazine, and as a tutor for the NUS Libraries Writer’s Centre. | Linkedin