Account-Based Pensions Explained
An account-based pension is the most common way Australians turn their super into a retirement income — a flexible income stream drawn from an invested balance that remains yours, rather than a fixed annuity paid by an insurer.
How it works
You transfer some or all of your super balance into a pension account (either within your existing fund or with a different provider), and it continues to be invested according to whatever option you choose, generally similar to the options available in accumulation phase — see Growth vs Balanced vs Conservative for how those options work. Each year you must draw down at least a minimum percentage of your balance, which increases as you age, though there's generally no maximum (unlike a transition to retirement pension before you've met a full condition of release — see Transition to Retirement).
Tax treatment
For most people aged 60 and over, both the income payments and any lump sum withdrawals from an account-based pension are entirely tax-free. Investment earnings on the assets supporting the pension are also generally tax-free within the fund, which is one of the more significant advantages of moving into pension phase compared to remaining in accumulation phase.
The transfer balance cap
There's a limit on how much can be transferred into the tax-free retirement phase across your pension accounts over your lifetime, known as the transfer balance cap. Amounts above this cap generally need to remain in accumulation phase (where earnings are taxed) or be withdrawn, rather than supporting a pension. Because this cap is indexed periodically, it's worth confirming the current figure rather than assuming an older figure still applies.
What happens if the balance runs out
Because withdrawals reduce the balance and it's invested (so it can also fall due to market movements), an account-based pension can theoretically be drawn down to zero if withdrawals and market losses outpace returns over a long enough period — see Retirement Drawdown Strategies for how to manage that risk sensibly.
How it compares to other retirement income options
Unlike a lifetime annuity, an account-based pension doesn't guarantee income for as long as you live — but it offers more flexibility, remains an asset you (or your estate) retain control over, and can be varied or stopped. See Lump Sum or Income Stream? for how to weigh this against taking a larger lump sum instead.
Frequently asked questions
Can I withdraw extra lump sums from an account-based pension whenever I want?
Generally yes, on top of your regular income payments, subject to your fund's specific rules — unlike some other retirement income products with more restrictive withdrawal terms.
What happens to an account-based pension when I die?
It's generally paid to your nominated beneficiary either as a lump sum or, in some cases, as a continuing income stream if the beneficiary is an eligible dependant — see Super Death Benefits.
Is there a minimum balance needed to start an account-based pension?
Most funds set a minimum starting balance, which varies by provider — check with your specific fund.
Minimum drawdown rates and the transfer balance cap are set by legislation and indexed periodically — confirm current figures on ato.gov.au before publishing.
This article contains general advice only. It has been prepared without taking into account your personal objectives, financial situation or needs, and does not constitute a recommendation to acquire, hold, or dispose of any financial product. Before acting on this information, consider its appropriateness to your own circumstances, and seek independent financial, tax and/or legal advice, or speak with a licensed financial adviser, before making any decision.
