Australia’s retirement income system is undergoing some of the most significant changes the sector has seen in years, with 2026 set to bring changes to the Age Pension, superannuation tax rules, and how Australians will journey through their laterworking-and-retirement years. These changes are focused on balancing consideration for high-balance funds with low-paid worker support, and how the system will remain sustainable with increasing life expectancy and housing costs. The changes in 2026 will influence the State of retirement planning and will impact the way individuals approach their savings, the timing of retirement, and the extent to which individuals will be required to hold income-generating assets.
2026 Changes to the Age Pension
A new Commonwealth Age Pension policy will, for the first time in four decades, provide changes to the Age Pension assessment framework. This means the Commonwealth will be increasing the number of Australians who will now qualify for at least a partial pension. These changes will provide greater flexibility for the Commonwealth Budget. More specifically, the Government has increased the income test and assets test thresholds regarding how Australians qualify for a pension. This means some retirees who, in the past, have been just above the cut-off point, will now be eligible for small pension increases, especially homeowners with few financial assets. Significant changes to the pension system are the new deeming rates. Prior to this change, Centrelink used the ‘deeming’ test to assess income streams from bank accounts and investments to determine which Tier of the income test a person falls. Adjustments have been made based on the Tier levels. The new deeming rates create a higher pooling of income classifications in the Tier which will increase the number of individuals who are effectively ‘deeming’ income which has not been made. For singles and couples, this represents a genuine increase in the effective pension and less of the income is actually required to be withdrawn.
The 2026 introduction of super tax increases is focused on the super balance amount. From July 1, 2026, super funds that have balance amounts greater than $3 million will have realized investment earnings taxed at 30%. This is an increase from the standard 15% tax rate. Additionally, balances that exceed $10 million will have a 40% tax rate. This is aimed at a very small percentage of people within this category.
These tax increases only apply to realized earnings, not “paper” unrealized gains, lessening the stress of this tax increase that financial advisors feared. Most Australians will still be taxed at 15% for balances below $3 million.
Further Support for Low-income Workers and Changes to Contribution Rules
The superannuation system will also become more generous to lower income earners. The Low Income Superannuation Tax Offset (LISTO) will now increase from $37,000 to $45,000. This also increases the effective rebate amount. Many employees who earn just at or below the threshold will now be able to have more of their super contributions and less lost to tax, allowing employees to build greater retirement savings over an extended period.
In 2026, we will see some more changes to contribution caps. The concessional (before-tax) cap will most likely increase to $32,500, as will the matching non-concessional (after-tax) cap. This is in line with wage growth, as the superannuation system needs to remain attractive for mid-career savers. The transfer balance cap, which is the limit to how much you can transfer to a tax-free retirement-phase pension, has also increased, now sitting around $2.1 million (previously $2 million), allowing more room for those with intricate retirement income plans.
| Item | Pre‑2026 (approx.) | 2026–27 change |
|---|---|---|
| Tax on super earnings above 3 million | 15% | 30% on realised earnings |
| Tax on super earnings above 10 million | 15% | 40% on realised earnings |
| LISTO upper income threshold | 37,000 dollars | 45,000 dollars |
| Concessional cap (workers) | 30,000 dollars | 32,500 dollars |
| Transfer balance cap | 2 million dollars | 2.1 million dollars |
| Deeming upper band (investment income) | 3.0%–3.5% | Review towards lower, more realistic band |
These numbers are a general estimate. Year-end indexing and individual situations can vary the numbers slightly, so be sure to consult the most recent statistics from the ATO and Services Australia before making any plans.
What approaches should retirees and savers take?
The 2026 changes will require steps to be taken by those almost at retirement age. If they are close to the transfer balance cap, they will need to plan to begin a retirement phase pension soon, as the increased cap to 2.1 million will give them greater flexibility to transfer funds to a tax free account without hitting the cap. Those with very large balances should consider when and how to realise a capital gain, as the increased tax on realised gains will impact the final outcome of the investment to a significant degree.
Younger and mid level staff should consider putting more money into super due to the better LISTO and improved caps on contributions. If your income has been low or has varied, these changes make salary sacrifice, government co-contributions and catch up contributions (if you are below a certain balance) for the 2026 regime. If you plan to retire after age 67, own a home or have complex investments outside super, you should speak with a financial adviser to model multiple scenarios as this will have a significant impact on you.
FAQs
Q1: What will happen if my super balance goes above 3 million in 2026?
Once your super balances hits 3 million dollars, the portion of your funds above this amount will be taxed at 30 per cent, whereas the rest will be taxed at the normal 15 percent. Unlocked gains are not taxed until they are actually realized to be sold.
Q2: Will the changes in 2026 grant me more Age Pension?
Those impacted most by the changes will only receive a modest increase or will receive a pension for the first time if they were just above the prior thresholds, particularly if their assets are modest and they rely on insecure income like part-time work or bank interest.
Q3: Will the changes to super in 2026 be permanent?
While this has been described to be a long-term reform in the form the structure is set like this for the long-term, subsequent governments will have the ability to make changes to the various thresholds and rates. Also, the rules are set to inflation and wage growth. This means that for the long-term, the numbers will continue to change even if the structure does not.
