“Retirement phase” is a term that carries enormous weight in Australian superannuation, because it marks the point at which a self-managed super fund’s Investment Earnings can become tax-free. Yet it is often used loosely, as though simply reaching retirement age or being in an SMSF is enough. It is not. Retirement phase is a precise concept in the tax and super law, tied to particular kinds of income streams and particular conditions. Only when a fund’s Assets are supporting a qualifying retirement-phase income stream do the earnings on them become exempt from tax. Understanding what retirement phase actually means — and what it does not — is central to running a compliant, tax-effective SMSF.

 

What “retirement phase” precisely means

In Superannuation law, the retirement phase is not a stage of life; it is a status attached to a superannuation income stream. A member’s interest is in the retirement phase when they are being paid a superannuation income stream that qualifies, and that qualification is what allows the fund to treat the supporting assets’ earnings as exempt.

Crucially, being retired, being over 60, or holding money in an SMSF does not by itself put anything into the retirement phase. The trigger is the commencement of a qualifying income stream that has moved into that phase. Money sitting in an accumulation account — even for someone well past retirement age — is not in the retirement phase, and its earnings are taxed at 15 per cent.

 

Which income streams qualify

The most common retirement-phase income stream paid from an SMSF is the account-based pension. Once a member has met a condition of release and the trustees commence an account-based pension, that pension is in the retirement phase from the start, and the assets supporting it generate exempt earnings.

A transition-to-retirement income stream (TRIS) is treated differently, and this is a common source of confusion. A TRIS is available from preservation age (now 60) while a member is still working. Since 1 July 2017, a TRIS in its ordinary “pre-retirement” state is not in the retirement phase — the earnings on its supporting assets are taxed at 15 per cent, just like accumulation, and it has a maximum drawdown of 10 per cent of the 1 July balance. A TRIS only moves into the retirement phase once the member meets a full condition of release with a nil cashing restriction — for example, retiring, reaching age 65, or notifying the fund they have met such a condition. At that point its earnings become exempt and it begins to count toward the transfer balance cap.

 

When earnings become ECPI

Once assets are supporting a retirement-phase income stream, the earnings on them — income and capital gains — are treated as Exempt Current Pension Income (ECPI) and taxed at 0 per cent. This is the tax outcome that gives the retirement phase its significance. The change from 15 per cent to 0 per cent is not gradual; it follows the moment the income stream enters the retirement phase.

For a TRIS, this means the tax treatment can flip during a member’s life: taxed at 15 per cent while it is a pre-retirement TRIS, then exempt once it converts to retirement phase on retirement or at age 65.

 

The transfer balance cap link

The retirement phase is deliberately capped. The transfer balance cap limits how much each person can hold in retirement-phase income streams across all their super. The general cap was $2 million in 2025–26 and was indexed to $2.1 million from 1 July 2026, rising in $100,000 CPI increments.

Each person has a personal transfer balance cap. Only someone who had never started a retirement-phase income stream before 1 July 2026 receives the full $2.1 million; those who commenced earlier may have a lower personal cap because of proportional indexation. When a retirement-phase pension commences, its value is credited to the member’s transfer balance account; commutations are debited. Staying within the cap is what keeps amounts in the tax-free earnings phase.

 

Transfer balance account reporting (TBAR)

Because the retirement phase is capped and monitored, SMSFs must report the events that affect a member’s transfer balance account through transfer balance account reporting (TBAR). Commencing a retirement-phase pension, commuting a pension, and certain other events are reported to the ATO so it can track each member’s position against their personal cap. Reporting is generally required on a quarterly basis, with the ATO using the data to monitor caps across a member’s entire superannuation, not just within one SMSF. Accurate and timely TBAR is a core compliance obligation for SMSF trustees with members in, or entering, the retirement phase, and errors or delays can lead to a member’s transfer balance account being misstated.

 

A hypothetical illustration

For illustration only: David, aged 62 and still working part-time, starts a transition-to-retirement income stream in his SMSF. While it remains a pre-retirement TRIS, the earnings on the supporting assets are taxed at 15 per cent, and it does not count toward his transfer balance cap. Three years later, at 65, his TRIS automatically moves into the retirement phase: its earnings become exempt (0 per cent), its value is reported through TBAR, and it counts against his transfer balance cap. The figures and timing here are hypothetical and shown only to illustrate how the concept works.

 

Key Takeaway

The retirement phase is a precise status attached to qualifying income streams, not a life stage. An account-based pension is in the retirement phase from commencement; a TRIS is not until the member meets a full condition of release such as reaching 65. Only in the retirement phase do earnings become 0 per cent ECPI. The amount that can be held there is limited by the transfer balance cap ($2.1 million from 1 July 2026), and the events are tracked through TBAR.