Account-based pensions

Pay yourself a regular income

An account-based pension (also known as an allocated pension) is a regular income stream, purchased with money you have accumulated in super, after you have reached preservation age.

How account-based pensions work

An account-based pension is started with a lump sum from a super fund. This is usually done by transferring money from an accumulation account to an account-based pension account, after you have reached your preservation age.

Find out your preservation age.

Super and pension age calculator

How do I access and withdraw money from super?

To access super you must also have met a condition of release unless you are setting up a transition to retirement pension.

How much do I have to withdraw each year?

You will have to withdraw a minimum amount each year, depending on your age, and if you are using a transition to retirement pension you will be limited to withdrawing a maximum of 10% each year.

Age Annual payment as a
% of account balance
55-64 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95+ 14%

How often are income payments made?

Income payments can be made monthly, quarterly, half-yearly or annually and continue until the account balance is exhausted.

Can I withdraw a lump sum?

Yes. You can withdraw some or all of your pension account, unless it is a transition to retirement pension. You can also roll it back into a super accumulation account.

How long do income payments last?

Account-based pensions are not guaranteed to last for a set period of time. How long your pension lasts will depend on how much you withdraw each year, the investment returns you receive and the amount of fees you pay. Our account-based pension calculator will give you an idea of how long your account-based pension will last, but remember it's only an estimate.

See how long your account-based pension might last.

 Account-based pension calculator

What happens if I die?

If you die, any money remaining in your account will be paid to your beneficiaries or your estate.

If you have nominated a reversionary beneficiary then that person will continue to receive your pension payments until the account runs out and will be able to manage the account just as you could before your death. If you nominate a child as your reversionary beneficiary they will only be able to receive pension payments until they reach age 25, and then any remaining balance will be paid to them as a lump sum.

If your beneficiary is a spouse or dependant they may choose to receive your death benefit payment as a pension or a lump sum.  Non-dependent beneficiaries will only be able to receive super death benefits as a lump sum.

Will I get the age pension if I also have an account-based pension?

The amount of Age pension you are entitled to is determined by applying an income test and an assets test. The test that results in the lowest Age pension being paid to you is the one that Centrelink will apply, this may change over time.

Under the assets test the whole balance of your account-based pension will be assessed.

If you started your account-based pension before 1 January 2015, and were already receiving a Centrelink pension or allowance, then only part of your pension income will be assessed under the income test. If you commenced your pension on or after 1 January 2015 then the whole balance will be deemed for income test purposes. 

Contact a Centrelink Financial Information Service officer or your financial adviser to see whether your income will affect your Age pension. See social security for more details.

Changes to account-based pensions in 2017

From 1 July 2017 there will be a limit on how much money can be held in an account-based pension. Details of the changes are available on the Australian Tax Office (ATO) website.

Benefits of account-based pensions

  • You don't pay tax on investment earnings
  • You won't pay tax on pension payments from age 60
  • If you are aged 55-59, the taxable portion of your account-based pension will be taxed at your marginal tax rate less a 15% tax offset
  • You can access your money at any time i.e. you can withdraw some or all of the money as a lump sum
  • Your balance will increase as investment earnings are added to your account
  • You can vary the payments (subject to minimum and maximum restrictions)
  • You can choose how your money is invested by the fund manager
  • There may be money left over for your estate

Older woman driving after taking out account-based pensionCase study: Nadia takes out an account-based pension

Nadia is 61 and single. She invests $150,000 in an account-based pension on 1 July 2013. Based on her age, she must take out a minimum of 4% of her investment, which is $6,000, during the financial year. Nadia decides to draw down $500 every month to supplement her income from her part-time job.

Drawbacks of account-based pensions

  • Your investment earnings are not guaranteed and may fluctuate in line with market performance depending on how your money is invested
  • There is no guarantee your super will last as long as you do

Account-based pensions are a good choice if you want a regular, flexible and tax-effective income. But they do not guarantee an income for life. Seek independent financial advice to ensure this is the right choice for your needs and circumstances.

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Last updated: 18 Apr 2017