An account-based pension is how most Australians turn their superannuation into a regular retirement income once they stop working. Your balance stays invested, you draw a regular payment, and earnings on the money become tax-free. Here’s how it works, what you’re required to withdraw each year, and how it interacts with the Age Pension.
Key takeaways
- An account-based pension turns your super into a tax-free income stream once you’re 60 or over.
- You must withdraw a minimum percentage each year, from 4% under age 65 up to 14% at 95 and over.
- The transfer balance cap limits how much can move into tax-free retirement phase — $2 million now, rising to $2.1 million from 1 July 2026.
- Your account balance, not your actual withdrawals, is what Centrelink uses to assess Age Pension entitlements via deeming.
What is an account-based pension?
An account-based pension (sometimes called an allocated pension) is an income stream you start by moving some or all of your superannuation into retirement phase. Instead of a lump sum, you receive regular payments — fortnightly, monthly, quarterly or annually — while the remaining balance stays invested. Most people can start one from age 60 once they’ve met a condition of release, such as retiring.
Minimum drawdown rates by age
The ATO sets a minimum percentage of your account balance you must withdraw each financial year. It’s a floor, not a target — you can withdraw more, and there’s no maximum. The percentage is applied to your balance as at 1 July each year, or pro-rated if your pension starts partway through the year.
| Age | Minimum annual drawdown |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95 and over | 14% |
Example: If you’re 66 with a $400,000 account-based pension balance on 1 July, your minimum drawdown for that year is 5% × $400,000 = $20,000. If your balance grows to $410,000 by the next 1 July, the following year’s minimum rises to $20,500, even if you didn’t add any new money.
Is account-based pension income taxed?
If you’re 60 or over, both the investment earnings inside your account-based pension and the income payments you receive are generally tax-free. This is one of the main reasons retirees move super into pension phase rather than leaving it in accumulation, where earnings are still taxed at up to 15%.
How does it affect the Age Pension?
An account-based pension counts toward both the Age Pension assets test and, via deeming rules, the income test. Centrelink applies deeming rates to your account balance rather than counting your actual drawdowns as income, which means the amount you choose to withdraw doesn’t directly change your Age Pension income test result — the balance does. This is a common area where retirees over- or under-estimate their entitlement, and it’s worth checking against the current thresholds before you decide how much to draw.
How much can you move into an account-based pension?
The transfer balance cap limits how much super you can move into the tax-free retirement phase over your lifetime. It’s currently $2 million, rising to $2.1 million from 1 July 2026 for anyone starting a pension for the first time after that date. If you’ve already started a pension, any increase to your personal cap is proportional to how much of your cap you’ve already used — not automatic. Amounts above your cap can stay in accumulation phase, where earnings are taxed concessionally rather than being tax-free.
How to set up an account-based pension
- Confirm you’ve met a condition of release (generally reaching age 60 and retiring, or reaching 65 regardless of work status).
- Decide how much of your super to transfer into the pension, keeping the transfer balance cap in mind.
- Choose your investment mix within the pension — this typically carries across from your existing super fund options.
- Set your payment frequency and amount, at or above the minimum for your age.
- Notify Centrelink or DVA of the new income stream if you receive, or expect to apply for, the Age Pension or a related concession card.
Frequently asked questions
What’s the difference between an account-based pension and a super account?
A regular super account is in accumulation phase, where earnings are taxed at up to 15% and there’s no requirement to draw an income. An account-based pension is in retirement phase, where earnings are tax-free but you must withdraw at least the minimum percentage each year.
Can I lose money in an account-based pension?
Yes. Your balance stays invested, so it moves with the markets, just as your super did. Regular withdrawals combined with investment losses can draw the balance down faster than expected, which is why the investment mix and drawdown rate both matter.
Do I have to take the minimum, or can I take more?
The published percentage is a legal minimum, not a target. You can withdraw more at any time, up to your full balance, with no upper limit.
Working out the right drawdown rate, investment mix, and Age Pension interaction for your own super balance is exactly the kind of decision worth getting advice on. Talk to our Adelaide superannuation advisers about setting up or reviewing your account-based pension.
