November 22 2022
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What is an account-based pension?

Your superannuation is likely to reach its peak just as you retire – when it's investing and generating returns from its largest possible sum. So you might want to withdraw your super gradually over time (while it continues to work for you in your super fund) rather than all at once (where it might not be generating returns). An account-based pension does exactly that – here’s how.

How does an account-based pension work?

With an account-based pension, you withdraw regular payments from your super to help meet your income needs. Put simply, it’s like being paid from your super instead of an employer.

Many people choose to withdraw their super this way because it can be easier to manage, and your super fund will keep your remaining money working for you.

An account-based pension also offers some flexibility in how much you can withdraw and when you receive payments (such as lump sums).

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Tip:

An account-based pension may impact your government aged pension entitlement or other income support payments. Our Rest Advisers can help you understand the finer details.

What are the benefits of an account-based pension?

  • Your super fund generally won’t pay tax on any earnings generated by your account.
  • You won’t pay tax on pension payments after the age of 60.
  • If you are between your preservation age and age 60, the taxable portion of your account-based pension will be taxed at your marginal rate with a 15% tax offset.
  • You can vary the payments (monthly, quarterly, half-yearly or annually) subject to annual minimum and maximum restrictions.
  • Your pension account may be able to be invested in a similar way to your pre-retirement super account.
  • While there’s no guarantee on how long your account will last, it’s possible that there may be money left over for your estate if your account has not run out by the time you die.

How long do account-based pension payments last?

An account-based pension is not guaranteed to last for any set period of time. It’s available to you for as long as you have money in your account. The length of time depends on:

  • the amount of super you transfer to your pension account,
  • how much you withdraw each year (or as a lump sum),
  • the investment returns you receive, and
  • the fees you pay.
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Tip: 

Try Rest’s superannuation calculator to help understand how much you’ll need to retire comfortably.

Are there downsides to an account-based pension?

  • Your investment earnings are not guaranteed and may fluctuate in line with market performance.
  • There's no guarantee your pension will last for your life.
  • The account-based pension forms part of the income and assets tests, so it may affect eligibility for Centrelink income support payments such as the Age pension.
  • There are limits as to how much you’re allowed to have in the concessionally tax retirement phase, this is called transfer balance cap, exceeding this threshold will result in excess transfer balance tax.
  • Money left over for your estate may be liable for additional 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 identified above.


How do I open an account-based pension?

To access your super, you need to meet a ‘condition of release’. Examples of these conditions include:

  • you’ve reached your preservation age and are fully retired,
  • you’ve reached age 65, or
  • you’re permanently incapacitated (as defined by superannuation law).

If that’s you, it may be worth considering whether an account-based pension would be suitable for your circumstances. If after carefully considering the pros and cons you decide to commence an account-based pension, contact us and we’ll convert your super account into an account-based pension.

Then you’ll receive a regular payment from your super in monthly, quarterly, half-yearly or annual instalments, subject to both maximum (TTR only) and minimum annual restrictions – it’s your choice. The annual restrictions will depend on your age and account balance, with your account balance in turn depending on the amount you transfer to your pension account, investment performance, fees, regular payments and lump sum withdrawals. Any funds that may remain after you pass away will be transferred to a beneficiary and may be subject to additional taxes.

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Tip:

If you’ve reached your preservation age but haven’t retired yet and don’t satisfy any other ‘condition of release’, you can only receive your super as pension payments using a transition to retirement strategy. This is subject to an annual limit of 10% of the account balance and there are generally no commutations (lump sum withdrawals).

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.

This information has been prepared for general informational purposes and should not be relied on for tax, accounting or other professional advice. Before making any decision or acting on the information, you should seek appropriate tax, accounting or other professional advice relevant to your circumstances.

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