An account-based pension offers regular, flexible and tax-effective income from your superannuation.
You can open an account-based pension when you reach preservation age and meet a condition of release. It lasts as long as your super money does but is not a guaranteed income for life.
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How an account-based pension works
An account-based pension (sometimes called an ‘allocated pension’) is a regular income stream bought with money from your super when you retire.
Typically, you get to choose:
- how much you want to transfer to the 'retirement phase' (subject to the transfer balance cap)
- the size and frequency of your payments
- how you want the money in your pension account invested
How your money is invested
With an account-based pension, you can choose how your money is invested from the various investment options offered by your super fund.
For example, you might decide to allocate the money in your account-based pension into cash, shares, property, bonds, or a mixture of asset classes. Learn more about super investment options.
It's important to know that the money in an account-based pension is subject to investment market risk - it doesn't have a guaranteed return. your account balance many go up and down, depending on the performance of the asset classes you're invested in. This, in turn, will affect the amount of regular income you receive, and how long your account-based pension will last in retirement.
Minimum amount of money to withdraw
There is a minimum amount you must withdraw from your account-based pension annually, which is calculated as a percentage of your account balance. There is no maximum amount - you can withdraw as much as you like from your account each year.
|
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% |
Frequency of payments
You can arrange for monthly, quarterly, half-yearly or annual payments. Check with your provider what frequencies are offered. Payments continue until the account balance runs out and you can also draw lump sums in addition to regular payments.
How long your pension lasts
How long your account-based pension lasts depends on:
- the amount of super you transfer to your pension account
- how much you withdraw from your pension each year (either through regular income payments, or from additional lump sum withdrawals)
- super investment earnings
- how much you pay in fees
Use our account-based pension calculator
Get an idea of how long your account-based pension may last.
Getting the Age Pension
Your eligibility for the Age Pension depends on your age, assets and income. Your account-based pension forms part of the income and assets test to assess your eligibility. If you are eligible, the Age Pension can supplement payments received from an account based pension.
Your account-based pension after you die
Money left in your account-based pension account when you die will go to your beneficiary or your estate.
- If you nominated a 'reversionary beneficiary' — they continue to get your pension payments until the account runs out. If they're a child, they'll get pension payments until age 25, then the balance as a lump sum.
- If you nominated a spouse or dependant as beneficiary — they can take your death benefit payment as a pension or lump sum.
- If you nominated a non-dependant as a beneficiary – they can take your 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 decide if an account-based pension is right for you.
Pros
- Flexible pension payments — you can choose a regular payment arrangement to suit you (subject to minimum withdrawal requirements).
- Add to Age Pension — if you're eligible, you may be able to use your account-based pension payments to top up your income.
- Tax-effective — you don't pay tax on superannuation or pension payments from age 60. If you're age 55 to 59, the taxable part of your pension is taxed at your marginal tax rate, less a 15% tax offset.
- Lump sum — you can withdraw all or some of your money at any time.
- Investment earnings are tax-free — when you open an account-based pension, investment earnings from that account are tax-free.
- Flexible investment options – you can choose how your fund invests your money, and returns are added to your account.
- Estate planning — there may be money left for your beneficiary when you die.
Cons
- Impact on Age Pension – your account-based pension forms part of the income and assets tests, so it may affect your eligibility.
- Investment returns are not guaranteed — your earnings may increase or decrease, depending on market performance. Investment losses are also possible.
- Longevity risk – there's no guarantee your super balance will last as long as you do.