An Account-Based Pension (ABP) — sometimes called an allocated pension — is the most common way Australians draw income from their super in retirement. You transfer some or all of your super into a pension account, which pays you regular income while the remaining balance continues to invest and earn returns.
An ABP is flexible: you set the income amount (above the required minimum), can make lump sum withdrawals, and can vary or stop payments. Unlike a lifetime annuity, there is no guaranteed income — the account will run out if you draw too much or live longer than the balance supports.
Key Takeaways
- An ABP converts super savings into a retirement income stream while the remaining balance stays invested
- Investment earnings in pension phase are taxed at 0% — compared to 15% in accumulation phase
- You must withdraw at least the minimum drawdown rate annually (e.g. 4% per year for ages 65–74)
- The transfer balance cap ($2.0M in FY2025–26) limits how much you can move into pension phase
- ABPs are not guaranteed income — the account will run out if you draw more than the balance can sustain
How an Account-Based Pension Works
- Open a pension account with your super fund (most funds offer this — you don’t need to change funds to retire)
- Transfer some or all of your super balance into the pension account (subject to the transfer balance cap of $2.0 million for FY2025–26)
- Set your income: Choose how much you want to receive each year — must be at least the minimum drawdown amount (see table below), with no maximum in pension phase
- Receive regular income payments — fortnightly, monthly, quarterly, or annually
- Your remaining balance stays invested and continues to earn returns (taxed at 0% in pension phase)
- Make lump sum withdrawals at any time for additional cash needs
Minimum Drawdown Rates by Age
The ATO sets minimum annual drawdown rates as a percentage of your account balance at 1 July each year (or the opening balance when you first start the pension). You must withdraw at least this amount each year — you cannot leave your money in pension phase without drawing anything.
These are the normal (post-COVID) minimum rates, which have applied since 1 July 2023:
| Age on 1 July | 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 are 70 years old on 1 July and your pension balance is $600,000, your minimum annual payment is $600,000 × 5% = $30,000.
There is no maximum drawdown limit for an account-based pension (as opposed to a Transition to Retirement pension, which has a 10% maximum cap).
Tax Treatment in Retirement
Age 60 and over — fully tax-free
If you are aged 60 or over and your pension comes from a taxed super fund (which is almost all funds — industry, retail, and most SMSFs), your pension income is completely tax-free. It does not appear on your tax return as assessable income.
Under 60 — taxable but with a 15% offset
Pension payments to members under 60 are generally assessable income, but you receive a 15% tax offset on the taxable component. In practice, many people in this age group pay little or no tax on their pension income once the offset is applied.
This is relevant for Transition to Retirement pensions where the member has not yet turned 60.
Tax on earnings inside the pension account
In pension phase, the fund pays 0% tax on investment earnings — including capital gains. This is compared to 15% on earnings in the accumulation (pre-retirement) phase. This tax benefit is one of the primary reasons Australians transfer to pension phase on retirement.
Important caveat: For super balances exceeding $3 million, the Division 296 tax (in effect from 1 July 2025) imposes an additional 15% tax on earnings attributed to the portion of the balance above $3 million, even in pension phase. See the Division 296 Tax guide for more detail.
The Transfer Balance Cap
You cannot have an unlimited amount in a pension account. The transfer balance cap limits the total amount you can transfer into retirement phase (pension accounts) during your lifetime. For FY2025–26, the cap is $2.0 million.
If you have more than $2.0 million in super, the excess remains in accumulation phase (taxed at 15% on earnings) rather than pension phase.
You can have multiple pension accounts, but the combined value of all transfers into pension phase cannot exceed your personal transfer balance cap.
See the Transfer Balance Cap guide for more detail.
Account-Based Pension and the Age Pension
An ABP interacts with the Age Pension through Centrelink’s means tests:
Assets test: The balance of your pension account is counted as an asset under the Centrelink assets test. This reduces your Age Pension entitlement on a sliding scale.
Income test — deeming: Centrelink applies deeming rates to your pension account balance to calculate a deemed income, regardless of what the fund actually pays you. For FY2025–26:
- First $62,600 (single) / $103,800 (couple combined): deemed at 0.25%
- Above those amounts: deemed at 2.25%
The deemed income is counted against the income test thresholds. Even if you draw more or less than the deemed amount, Centrelink calculates on the basis of the deemed income.
See the Super and Age Pension guide for more detail on how this interacts.
Frequently Asked Questions
Can I have an account-based pension and also have money in accumulation super? Yes. Many retirees have both — they transfer a portion of their super into a pension account (up to the transfer balance cap) and leave the rest in accumulation. Contributions cannot be made to a pension account, but you can continue contributing to accumulation super in some circumstances.
What happens to the balance when I die? The remaining balance of an ABP at your death is paid to your beneficiaries (based on your binding or non-binding death benefit nomination). The tax treatment depends on who receives it and whether they are a tax dependant. Generally, payments to a spouse or financial dependant are tax-free. Payments to adult children who are not dependants may be partially taxable.
Can I change the income amount I receive? Yes — you can increase or decrease the income amount at any time (subject to the minimum). Many retirees increase payments to meet a specific expense or reduce payments when they need less income.
What if I spend down to zero — can I re-contribute? If your pension account runs to zero, it ceases. You cannot re-contribute to it. If you have money in accumulation phase, you can start a new pension from that balance. This is why having reserves in accumulation can provide a buffer.
For advice tailored to your retirement income situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.