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What is an account-based pension? Your income during retirement.

What are the benefits of an account-based pension?
Are there downsides to an account-based pension?
How do I open an account-based pension?
November 01 2024
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An account-based pension (ABP) is an account you open with the superannuation money you’ve saved over your working life. At Rest, this is known as a Rest Pension account. Once you’ve set it up, regular payments from it will go into your bank account to spend as you need it.

You can generally access your super and start an account-based pension after you turn 60 and retire, or you may start a Transition to Retirement (TTR) pension if you’re still working after age 60.

Here’s a comparison chart to show how an account-based pension is different from the government’s Age Pension:

Account-based Pension Age Pension  
Self-funded income from your superannuation savings Government funded income  
You generally must be age 60 or more and retired to be eligible for a pension. Or a TTR pension if you are 60 and  still working You must be 67 and eligibility will be determined by your residency, income, assets, and relationship status  
Flexibility with the ability to choose the amount and frequency of payments If eligible, a fixed timing and the amount you receive is determined by income, assets, and relationship status  
Payments are tax-free over the age of 60 Payment form a part of your taxable income unless it is your only source of income in retirement  
How long will it last?
It depends on how much you take and how much in investment earnings you receive.		 Paid by government subject to eligibility tests  
Account-based Pension Self-funded income from your superannuation savings
Age Pension Government funded income
 
Account-based Pension You generally must be age 60 or more and retired to be eligible for a pension. Or a TTR pension if you are 60 and  still working
Age Pension You must be 67 and eligibility will be determined by your residency, income, assets, and relationship status
 
Account-based Pension Flexibility with the ability to choose the amount and frequency of payments
Age Pension If eligible, a fixed timing and the amount you receive is determined by income, assets, and relationship status
 
Account-based Pension Payments are tax-free over the age of 60
Age Pension Payment form a part of your taxable income unless it is your only source of income in retirement
 
Account-based Pension How long will it last?
It depends on how much you take and how much in investment earnings you receive.
Age Pension Paid by government subject to eligibility tests
 
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Can I get the Age Pension if I am also drawing an income from an account-based pension?

Once you’ve’ reached the Age Pension age, you might be eligible for the Age Pension, even if you have super savings. Explore how much super you can have and still be eligible for the Age Pension here.

What are the benefits of an account-based pension?

  • You generally won’t pay tax on any earnings generated by your Rest account. You won’t pay tax on pension payments after the age of 60.
  • You can vary the payment frequencies (fortnightly, monthly, quarterly, half-yearly or annually) and amounts (subject to annual minimum and maximum restrictions).
  • You'll have flexibility to take lump sum payments from your Rest account if you need to, these are also tax free after the age of 60.
  • Your pension account stays invested and working for you like your pre-retirement super account did while you were still working.
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Tip:

Try Rest’s superannuation calculator to see how much you could have to spend in retirement and explore different ways to help boost your super balance. Or, if you’re a Rest Member, try our Retirement Health Check.

Are there downsides to an account-based pension?

  • Your investment earnings aren’t guaranteed and may go up or down in line with market performance.
  • There's no guarantee your pension will last for your life.
  • The account-based pension forms part of the Government's income and assets tests, so it may affect whether you can receive Centrelink income support payments like the Age Pension.
  • There are limits on the total amount of super that can be transferred into the retirement phase - this is called the transfer balance cap. If you exceed this cap you’ll pay an “excess transfer balance” tax.
  • Money left over from your account-based pension when you pass away may attract extra taxes.

Account-based pensions can be a good choice if you want a regular, flexible, and tax-effective income, but they don’t guarantee an income for life and are subject to the limitations outlined above.

How do I open an account-based pension?

Once you decide to start a Rest Pension Account, this checklist can really help you understand your eligibility and how to open an account.

Need to talk it over? The Rest Advice team can help you decide whether an account-based pension is right for you and offer advice on how to maximise your savings before retirement. Get in touch today.

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