What is an account-based pension?

If you’re nearing or in retirement, knowing how to turn your super into a steady income can feel unclear. An account-based pension can help simplify this. It lets you move some or all of your super into a new account, so you can draw a regular income while the rest stays invested and continues to grow.

You might also hear it called an allocated pension or super income stream. Your income comes directly from your account balance. That means how long it lasts depends on how much you start with, how much you withdraw, and how your investments perform. Because of this, it’s not a guaranteed income for life, but it does give you flexibility and control over how you use your money.

Retirement can feel complex. But an account-based pension keeps things simple. In three steps, you can turn your super into a flexible income stream, while keeping your money invested. 

• Move your super into retirement  
  To get started, you’ll usually need to have reached your preservation age (currently 60) and met a condition of release, like retirement. From there, you can transfer some, or all, of your super into a pension account. Keep in mind, there’s a lifetime limit on how much you can move into retirement (called the transfer balance cap).
• Choose your income  
  Once your pension is set up, you’re in control. Decide how much you’d like to receive and how often, fortnightly, monthly, bi-annually or annually. Each year, you’ll need to withdraw a minimum amount based on your age. Beyond that, you can usually take more if you need to.
• Keep your money invested 
  Your pension doesn’t stop working when you retire. Your balance stays invested in the options you choose, so it can continue to grow over time. Like all investments, values can go up and down, and returns aren’t guaranteed. That’s why choosing a strategy that matches your goals and comfort with risk is so important.

Your minimum pension payment is based on your age, and it increases over time. Managing your retirement income can feel complex. The good news? There’s a simple rule to follow. Each financial year, you’ll need to withdraw a minimum amount from your account-based pension. This is worked out as a percentage of your balance, and it increases as you get older.

Your minimum amount is reset on 1 July each year, based on your age and your balance at that time, so it stays aligned to your stage of life.

The minimum drawdown rate for each age group is shown in the table below.  

Note: The table above shows the standard minimum percentages for each financial year. Age is measured on the commencement day of the pension and every following 1 July.  

The government halved the minimums for the following financial years: 2008/09, 2009/10, 2010/11, 2019/20, 2020/21, 2021/22 and 2022/23. The government reduced the minimums by a quarter in 2011/12 and 2012/13.  

If you’re 60 or over and satisfied a condition of release such as retirement, an account-based pension can be a tax-effective way to draw an income. In many cases, the payments you receive, along with the investment earnings within your account, are tax-free.

One of the key benefits of moving from super (accumulation) into retirement phase is how your investment earnings are treated. In accumulation, earnings are typically taxed (up to 15%). In retirement, they may be tax-free, helping your savings go further.

Different rules can apply if you’re under 60, or if you have a capped defined benefit income stream. That’s why it’s important to check what applies to you, either through the ATO or a licensed financial adviser.

Thinking about moving into retirement? Here’s where the cap comes in. The transfer balance cap sets a lifetime limit on how much super you can move into retirement phase, where your investment earnings may be tax free. From 1 July 2026, the general cap is $2.1 million (up from $2.0 million, and indexed over time).

If you go over your cap, you still have options. Any amount above your personal cap can stay in super in the accumulation phase (where earnings are taxed), or you may be able to withdraw it, depending on the rules. Because caps can change over time, and your personal cap may differ, it’s worth checking your limit with the ATO or exploring our detailed guide.

Planning for retirement can feel uncertain, especially when balancing flexibility with long-term income. An account-based pension gives you control over how you access your money and can offer tax benefits. But it’s important to know it doesn’t guarantee income for life. Understanding the trade-offs can help you decide if it fits your retirement plans.

• Control over your income
  Choose how much you withdraw (above the minimum) and when, with the option to take lump sums if needed.
• Tax advantages from age 60
  For most people, payments and investment earnings become tax-free.
• Ongoing investment choice
  Your money stays invested, with potential to keep growing during retirement.
• Works alongside the Age Pension
  Often used together to support retirement income.
• Access to your money
  You can usually access your remaining balance when you need it.

• Your balance can run down 
  Taking out more than your investments earn, or living longer than expected, may reduce your savings over time.
• Market ups and downs 
  Your balance is invested, so it can rise and fall with market movements, particularly in volatile periods.
• No fixed income 
  Payments can vary and aren’t guaranteed for life, unlike some annuities.
• Minimum withdrawal rules apply 
  You’re required to take a set minimum amount each year, even if you’d prefer to leave it invested.
• Potential Centrelink implications 
  If your account-based pension was commenced before 1 Jan 2015 and you have been receiving a Centrelink income support payment since that time, the way you withdraw your balance can have different impact on your Centrelink payment. Speak to your financial adviser for more information.

If you’re receiving (or planning to receive) the Age Pension, your account-based pension can make a difference to how much you’re paid. This is because Centrelink applies both the income test and the assets test when assessing Age Pension eligibility. Your account-based pension balance is generally counted as an asset. For the income test, deeming rules apply, meaning Centrelink assumes your pension investments earn a set rate of return regardless of their actual investment performance or the amount you withdraw from the pension each year.

The amount of Age Pension you may receive depends on a few key factors, including your assessable income, total assessable assets, whether you own your home, and if you’re single or part of a couple. So it all depends on your overall financial position. Check your eligibility with our age pension guide. 

Retirement income isn’t one-size-fits-all. An account-based pension is just one way to draw an income, and many Australians combine it with other options to create the right balance of flexibility and certainty.

• Annuities 
  Provide a guaranteed income for a set period or for life. In return, you trade some flexibility and access to your money for greater certainty.
• Age Pension 
  A government safety net, paid based on your income and assets.

Many retirees use a mix of these options. For example, combining an account-based pension with a part Age Pension, and sometimes an annuity, which can help create a steady income while keeping some flexibility.