An account-based pension gives you flexible, regular income from your super in retirement.
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How an account-based pension works
An account-based pension (also called an allocated pension or retirement income account) gives you a regular income from your super.
You can start one when you reach preservation age and meet a condition of release. It continues until your super runs out. It does not guarantee an income for life.
With an account-based pension, you can usually choose:
- how much super you move into pension phase (subject to the transfer balance cap)
- how much income you take (subject to minimum withdrawal requirements - see below)
- how often you get paid
- how you invest your money.
How your money is invested
With an account-based pension, you choose how to invest your money.
Your super fund offers a range of investment options.
For example, you can invest in cash, shares, property, bonds, or a mix of these. Learn more about super investment options.
Changes in investment returns affect:
- how much income you get (subject to minimum withdrawal requirements - see below)
- how long your account-based pension lasts.
Minimum amount of money to withdraw
You must withdraw a minimum amount from your account-based pension each year. Your minimum withdrawal depends on your age and your account balance on 1 July each year.
Use the table below to check the minimum percentage you must withdraw.
|
Age at 1 July |
Annual payment as % of account balance |
|
Under 65 |
4% |
|
65—74 |
5% |
|
75—79 |
6% |
|
80—84 |
7% |
|
85—89 |
9% |
|
90—94 |
11% |
|
95+ |
14% |
You can withdraw more than the minimum amount at any time.
Frequency of payments
You choose how often you receive payments from your account-based pension. Your super fund can pay you monthly, quarterly, half-yearly or yearly.
Check with your super fund to confirm the payment options they offer.
You super fund will pay you until your account balance runs out. You can also take lump sums at any time.
How long your pension lasts
Your account-based pension continues until your balance runs out.
How long it lasts depends on:
- how much money you start with
- how much you withdraw each year
- how your investments perform
- how much you pay in fees.
If you withdraw more, your account may run out sooner. If your investments perform well, your account may last longer.
Getting the Age Pension
Your eligibility for the Age Pension depends on your age, assets and income.
Services Australia includes your account-based pension in the income test and assets test. These tests affect whether you can get the Age Pension and how much you receive.
If you qualify, the Age Pension can add to your income from your account-based pension.
Your account-based pension after you die
Your super fund pays money left in your account to your beneficiary or your estate.
There are certain conditions that need to be met when nominating beneficiaries or your estate. Learn more about nominating beneficiaries or talk to your super fund.
- If you nominate a reversionary beneficiary, your fund continues the pension payments to them until the account runs out.
- If the beneficiary is a child, your fund continues payments until age 25. It then pays the remaining balance as a lump sum.
- If you nominate a spouse or dependant, they can choose to take the benefit as a pension or a lump sum.
- If the beneficiary is not a dependant, your fund pays the benefit payment as a lump sum.
If you have super in a retirement income stream and still have super in an accumulation account, you can have different beneficiaries. If you make changes, check both are up to date with your wishes.
Pros and cons of an account-based pension
Consider the pros and cons to understand how an account-based pension works.
Pros
- Flexible payments — you can choose how much income you take (subject to minimum withdrawal rules).
- Can add to Age Pension — if you qualify, the Age Pension can add to your income.
- Tax benefits — if you are 60 or over, you may not pay tax on your payments. If you are age 55 to 59, your fund taxes the taxable part of your pension - the part of your super that has not been taxed - at your marginal tax rate, less a 15% tax offset. Read more about tax on super benefits.
- Access to lump sums — you can withdraw all or part of your balance at any time.
- Tax-free investment earnings — your fund does not usually tax earnings on your pension account.
- Flexible investments – you can choose how to invest your money.
- May leave money to a beneficiary — your fund may pay any remaining balance to your beneficiary or your estate.
Cons
- Affects Age Pension — Services Australia includes your account-based pension in the income and assets tests.
- No guaranteed returns — your balance can go up and down with market performance.
- May not last for life — your balance may not last as long as you do.
- Once started, you can't add extra money to your account — you'll usually need to start a new one.
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