Account-based pensions

An account-based pension offers regular, flexible and tax-effective income from your superannuation.

You can get one when you reach ‘preservation age’ (between 55 and 60). It lasts as long as your super money does, but is not a guaranteed income for life.

How an account-based pension works

An account-based pension (or 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 ‘pension phase’ (subject to the balance transfer cap)
the size and frequency of your payments (within the minimum or maximum allowed)
how you want your super invested (through your fund)

Preservation age

You can get your super when you retire and reach your preservation age. This is between 55 and 60, depending on when you were born.

Minimum amount of money to withdraw

To help manage the affects of COVID-19, the Government is temporarily reducing superannuation minimum drawdown rates for account based pensions by 50 per cent. This will reduce the need for retirees to sell investment assets to fund minimum drawdown requirements.

For the 2019-20, 2020-21 and the 2021-22 financial years the minimum drawdown is:

Age	Annual payment as % of account balance
55—64	2%
65—74	2.5%
75—79	3%
80—84	3.5%
85—89	4.5%
90—94	5.5%
95+	7%

Frequency of payments

You can arrange for monthly, quarterly, half-yearly or annual payments. Payments continue until the account balance runs out or you take what’s left as a lump sum.

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 take in payments each year
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 will 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.

Your account-based pension after you die

Money left in your super 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. A non-dependant beneficiary can take your benefit payment as a lump sum.

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 payment arrangement to suit you (within the minimum or maximum allowed).
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 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 — 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 earnings may go down in value — depending on market performance.
Longevity risk – there’s no guarantee your super balance will last as long as you do.

For more information on account-based pensions, speak to us on PH: 0437 782 836.

Source: moneysmart.gov.au
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/account-based-pensions

Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.

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