Superannuation Death Benefits: What Age Pensioners Should Know About Tax-Free and Taxable Components
When planning retirement, many Australians focus on their Age Pension application and Centrelink Age Pension payments — but it’s equally important to consider what happens to your superannuation after you pass away. Understanding how the tax-free and taxable components of your super affect your beneficiaries can help you make smarter estate planning decisions and reduce tax impacts for your loved ones.
Tax-Free vs. Taxable Super Components
Your super is made up of two parts:
Tax-free component: Contributions made from after-tax income (non-concessional). Always tax-free when paid to beneficiaries.
Taxable component: Includes employer contributions and investment earnings. May be taxed depending on who receives it.
Who Your Beneficiaries Are Matters
The tax treatment of your super death benefit depends on the relationship between you and your beneficiary:
If your beneficiary is a tax-dependent (e.g., a spouse or financially dependent child), both components are tax-free.
If your beneficiary is not a tax-dependent (e.g., an adult child who is financially independent), they may pay up to 17% tax on the taxable component.
Age Pensioners and Estate Planning
If you’re receiving the Centrelink Age Pension, you’ve likely already met Age Pension eligibility rules and are accessing your super. Even though your super income is tax-free for you after age 60, it may not be tax-free for your beneficiaries.
For example, if you leave a super balance of $300,000 with $100,000 tax-free and $200,000 taxable:
Your adult child could pay $34,000 in tax on the taxable component.
Your spouse would receive the full amount tax-free.
How to Minimise Tax for Your Beneficiaries
As part of your retirement and Age Pension application planning, consider these steps:
Use a re-contribution strategy
If you're over 60, you may be able to withdraw taxable super and re-contribute it as non-concessional (tax-free), reducing potential tax for beneficiaries.Nominate beneficiaries wisely
Use binding death benefit nominations to ensure your super goes directly to the intended person — preferably a tax-dependent if you want to avoid tax.Withdraw super while alive
Some pensioners choose to draw down their super and pass it on as cash — especially if they’ve already met Age Pension eligibility and are managing income via Centrelink.
Tools and Support
Not sure how your super impacts your Age Pension eligibility or estate planning? Try an Age Pension calculator online to estimate how super, income, and assets affect your payment. You can also contact Services Australia for help on how to apply for the Age Pension or to update your financial information.
Final Thoughts
While your Age Pension application focuses on income and assets, don’t overlook the long-term impact of your super's taxable and tax-free components. Understanding how these affect your beneficiaries allows you to plan smarter and preserve more of your legacy.
If you’re unsure how to apply for Age Pension or want to optimise your retirement plan, speaking to a financial adviser can help align your super, pension, and estate planning goals.
