Tax on pension withdrawals and payments

We may be required to withhold Pay As You Go (PAYG) tax on benefit payments to members who are under 60 and have received: 

• a pension payment(s) containing a taxable component
• a lump sum payment from super or pension account (containing a taxable component) over the low rate cap .

The taxable component, for members under 60, is assessable income and the PAYG instalments required by law assist in meeting your client’s tax liability. The PAYG amount will be offset against the client’s tax liability, with any excess refunded to your client.

The amount of tax payable on a withdrawal depends on several factors such as the type of withdrawal, the tax components of your client’s benefits as well as the age of your client.  
 
If your client is below their preservation age and they want to make a withdrawal as a:

• Pension payment 
  • They will pay tax on the taxable component at their marginal tax rate*. A 15% tax offset applies if it is a disability super benefit
• Lump sum 
  • They will pay tax on the taxable component at a maximum rate of 20%*

If your client is between preservation age and 59 and they want to make a withdrawal as: 

• Pension payment
  • They will pay tax on the taxable component at their marginal tax rate* less a 15% tax offset 
• Lump sum
  • They will pay 0% up to the low rate cap on the taxable component; and 
  • A maximum rate of 15%* on the taxable component above the low rate cap

* Plus the Medicare levy 

The tax-free component of any pension payment or lump sum withdrawal is received tax free regardless of your client’s age.  
 
If your client is over 60, payments are generally non-assessable non-exempt income.  
 
Please note, the tax treatment is different for non-residents and disability pension accounts. For more information about non-residents and disability pension accounts, refer to the Macquarie Big Black Book.