An account-based pension (ABP) — also called an allocated pension — is the most common way Australians convert their superannuation savings into a retirement income stream. It works by drawing regular payments from your super balance, with the remaining balance continuing to be invested. The account pays out until either the balance is exhausted or you die.
How an Account-Based Pension Works
- You retire and meet a condition of release
- You transfer some or all of your super accumulation balance into a pension account within your super fund
- The fund invests your pension account (in an investment option you choose)
- You draw regular income payments (monthly, quarterly, or annually)
- The balance grows through investment returns and reduces through drawdowns
- When you die, any remaining balance is paid to your beneficiaries (or estate)
Minimum Annual Drawdown Rates
The government requires a minimum percentage of your account balance to be drawn each year. This ensures super is actually used to fund retirement rather than being preserved as a wealth transfer vehicle.
| Age | Minimum drawdown rate |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95+ | 14% |
There is no maximum drawdown — you can withdraw as much as you need above the minimum.
Example: $600,000 account-based pension at age 67. Minimum annual drawdown = 5% × $600,000 = $30,000/year.
Note: The government has previously offered temporary minimum drawdown reductions (e.g., during COVID-19). Current standard rates apply — check with your super fund for current year rates.
Tax on Account-Based Pension Income
For individuals aged 60 and over, income drawn from an account-based pension is tax-free (assuming a taxed fund — most retail and industry super funds are taxed funds). This is one of super’s most powerful tax advantages.
For individuals between preservation age and 59, pension income may be partially taxable — the taxable component is included in assessable income but a 15% offset applies.
The earnings on assets supporting an account-based pension are also exempt from tax (0% earnings tax in pension phase, compared to 15% in accumulation phase). This is why converting to pension phase is a significant retirement tax benefit.
Transfer Balance Cap — $1.9 Million Limit
There is a limit on how much super can be transferred into pension phase — the Transfer Balance Cap (TBC) of $1.9 million (FY2025–26). Once $1.9 million has been transferred to pension phase, no further transfers can be made.
Super above $1.9 million remains in the accumulation phase (taxed at 15% on earnings). This is why having $1.9 million in pension phase is an important threshold to plan around.
Centrelink Assessment of Account-Based Pensions
Account-based pensions are assessed under the income test using the deeming rules for pensioners who applied for the Age Pension on or after 1 January 2015. Deeming calculates a notional income based on the pension account balance — regardless of actual earnings or drawdowns.
Under the assets test, the full account balance is counted as an assessable asset.
Account-Based Pension vs Annuity
| Account-based pension | Annuity | |
|---|---|---|
| Income certainty | Variable — depends on balance | Guaranteed |
| Balance remaining | Yes — invested, can leave to estate | No residual (or limited) |
| Flexibility | High | Low |
| Longevity risk | Risk of running out | Protected |
| Inflation risk | Can adjust drawdowns | Fixed payments erode with inflation |
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Frequently Asked Questions
Can I still invest my super in an account-based pension? Yes. Your pension account remains invested in your chosen investment option (growth, balanced, conservative, or specific asset class options). Investment returns — positive and negative — affect your ongoing balance and how long your pension lasts.
What happens to my account-based pension when I die? The remaining balance can be paid as a death benefit — either as a lump sum or a pension — to eligible dependants (spouse, children under 18, financial dependants). Non-dependants receive the balance as a lump sum, which may be partially taxed. Ensuring your super beneficiary nomination is current is important.
How long will my account-based pension last? This depends on your balance, drawdown rate, and investment returns. A $600,000 pension drawing $30,000/year (5%) in a balanced fund may last 25–30+ years. ASIC’s MoneySmart Retirement Planner can estimate how long your balance may last.
This article provides general financial information only. Past investment returns are not a reliable indicator of future performance. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.