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Account-based pension
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Published on 23 Jan 2024Retirement income from your super – all your questions answered.
What is an account-based pension?
An account-based pension is one of the most common ways retirees over 60 years of age use their super as an income. When you retire, you simply transfer your super balance to your account-based pension and either set your regular payments, draw on it as needed, or both.
What’s an allocated pension?
(And how is it different from an account-based pension?)
When it comes to superannuation, an allocated pension fund, account-based pension and super pension account are all basically the same thing and are often used interchangeably.
How does an account-based pension work?
If you’ve reached at least 60 years of age and decided it’s time to retire and live off your super, you generally have three choices[1]:
- open an account-based pension
- withdraw your super as a lump sum
- a combination of both.
If you open an account-based pension, your super balance is transferred to your pension account. Then you simply choose how much income you want to receive from it (subject to certain minimums – see below) and how often.
What’s more, your super doesn’t sit idle. While it’s in your account-based pension, your money continues to be invested.
A Prime Super Income Stream account (account-based pension) gives you the flexibility to use your account as a regular income and also make additional withdrawals when you want a bit of extra cash to go on holiday, buy a new car, or something else.
Opening an account-based pension (Retirement Income Stream) with Prime Super is also pretty simple – and you don’t even need to be an existing member.
What is the difference between an account-based pension and an age pension?
The main differences between an account-based pension and the age pension are the limitations that people on the age pension face. Unlike an account-based pension (your money accumulated during your working life), the fortnightly age pension amount is set by the government, can only be accessed after you turn 65, is subject to income and assets tests, and doesn’t allow you to withdraw extra funds.
It may be possible however, to draw the government age pension and a small super income stream as well. Our super experts can give you more details and explain the pension rules. For more information on the age pension, refer to Services Australia.
How much will I need in retirement?
How much you’ll need in retirement depends on your personal circumstances. You can start by using our retirement needs calculator to get an idea of your requirements. If you have questions or would like more detailed information about how you can use your super in retirement, you can book a chat with a super specialist.
Account-based pension vs annuity
The difference between an account-based pension and an annuity is primarily the way they’re set up and the flexibility they offer. An annuity provides a fixed income (with a few conditions) either for a pre-determined or an estimated amount of years, or for the rest of your life. Generally, you can’t withdraw funds, alter the amount you receive or make other changes, and less likely to fluctuate in performance compared to account-based pension
Account-based pensions offer greater flexibility in terms of amount, frequency and investment options, but since the balance is invested in the interim, it can be affected by fluctuations in investment returns.
Is a transition to retirement (TTR) an account-based pension?
While TTR and retirement super pensions are both account based pensions, there are also some key differences. For starters, a TTR income stream is generally for people under 65 who are still working, whereas account-based retirement pensions are designed for those who have fully retired. Investment income earned in TTR is taxed up to 15% while it’s generally zero for pension accounts, and unlike an account-based pension where you can generally withdraw lump sums of your choosing, under a TTR, you can only access up to 10% of your balance each year.
What are account-based pension payments rates?
The Australian Government sets annual minimum payment rates depending on your age. Currently, they start at a minimum of 4% of your account balance, rising to 14% if you're aged 95 or older. During the pandemic, these rates were halved, but have returned to their former levels for the 2023-24 financial year. You can find the latest minimums (also known as drawdown rates) by referring to our minimum limits table.
Still have questions?
Don’t worry. Super income can get a bit complex, but you’ll find more information on our Retirement Income Stream page, or by having a chat with one of our super specialists.
