A little about account-based pensions
As retirement approaches, one of the biggest decisions you may face is how to turn your super savings into a regular income.
One option is an account-based pension. Rather than withdrawing all your super as a lump sum, you can transfer some or all of your eligible super into a retirement income account and draw payments from it over time.
How does an account-based pension work?
An account-based pension allows you to draw a regular income from your super savings during retirement.
Your money remains invested within your super fund while you receive pension payments. This means your account balance can continue to change depending on investment performance and how much you withdraw.
Account-based pensions can offer flexibility around your retirement income. However, you need to meet minimum pension payment requirements each financial year.
Depending on your circumstances and your fund’s rules, you may also be able to make additional lump-sum withdrawals when you need them.
How much do you need to withdraw?
Account-based pensions have minimum annual payment requirements.
The amount you need to withdraw depends on factors including your age and pension account balance. This means your minimum payment can change over time.
It’s important to check your minimum pension payment each financial year and make sure you withdraw the required amount.
What is the transfer balance cap?
There is a limit on how much super you can transfer into the retirement phase.
For the 2026–27 financial year, the general transfer balance cap is $2.1 million.
However, your personal transfer balance cap may be different, particularly if you started a retirement phase income stream in an earlier year.
If your super savings exceed the amount you can transfer into retirement phase, this doesn’t necessarily mean you have to withdraw the excess from super. Depending on your circumstances, some of your super may remain in an accumulation account.
What are the tax benefits?
Account-based pensions can offer favourable tax treatment in retirement.
Investment earnings on assets supporting a retirement phase income stream can generally receive tax-free treatment within the fund, subject to the relevant super rules and limits.
The tax treatment of the pension payments you personally receive depends on factors including your age and the type of super benefits you hold.
Your money remains invested
An account-based pension isn’t the same as putting your retirement savings into a bank account.
Your money generally remains invested, so the value of your pension account can rise or fall with investment performance.
How much you withdraw also matters. Drawing a higher income may give you more money to spend now, but it can also reduce how long your retirement savings last.
Finding the right balance between your current income needs and preserving your retirement savings is an important part of retirement planning.
Is an account-based pension right for you?
An account-based pension is just one way to access your super in retirement. The right approach will depend on your circumstances, retirement plans, income needs and super balance.
You may also need to consider how your retirement income strategy interacts with your other investments, tax position and any government benefits you receive.
If you’re approaching retirement or considering starting an account-based pension, it’s worth understanding the tax and super implications before making any changes. Talk to us if you’d like help understanding how the rules may apply to your circumstances.
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Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
