An account-based pension (also known as an allocated pension) is a regular income that you receive in your retirement or when you reach preservation age. It is drawn from your super benefits and provides the security of regular payments.
How account-based pensions work
You can buy an account-based pension with a lump sum from a super fund. An investment account is set up with this money from which you draw a regular income.
The minimum payment depends on your age.
For instance, if you’re aged between 55 and 64 the annual minimum payment is 4% of your balance. If you’re between 65 and 74 the minimum is 5%
How often are income payments made?
Income payments can be made monthly, quarterly, half-yearly or annually and continue until the account balance is exhausted. You can generally change the frequency of the payments at any time.
Can I withdraw a lump sum?
Yes. You can take the money out as cash unless your pension is paid under transition to retirement rules. You can also roll it back into a superannuation account.
How long do income payments last?
There is no guarantee you will have a lifetime income. Your account balance is affected by how much you take out each year and what investment returns you receive.
What happens if I die?
If you die, any money remaining in your account will be paid out as a lump sum to your dependents or your estate. Alternatively, the income payments can continue to a beneficiary, such as a spouse or dependant.
Will I get the age pension if I also have an account-based pension?
It depends. The amount in your account-based pension will be assessed under the assets test for the age pension. Part of the income you get each financial year is also assessed under the income test. Contact your financial adviser to see whether your income will affect your pension.
Benefits of account-based pensions
- You don’t pay tax on investment earnings
- You can access your money at any time i.e. you can withdraw some or all of the money as a lump sum
- Your balance will increase as investment earnings are added to your account
- You don’t pay tax on your income from age 60
- If you are aged 55-59, the taxable portion of your account-based pension will be taxed at your marginal tax rate. However, the tax payable will receive a 15% offset.
- You can vary the payments (subject to minimum levels based on your age)
- You can choose how your money is invested by the fund manager
- There may be money left over for your estate
Drawbacks of account-based pensions
- Your investment earnings (and your account balance) will fluctuate in line with market performance.
- There is no guarantee your super will last as long as you do.
Account-based pensions are a good choice if you want a regular, flexible and tax-effective income. But they don’t give you the peace of mind of knowing you will have an income for life. Seek independent financial advice to ensure this is the right choice for your needs and circumstances.
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.