A little about account-based pensions
The range of options for drawing an income from your superannuation can feel overwhelming. Here, we break it down by looking at a few questions about one option: account-based pensions.
Remember, obtaining quality financial advice before making decisions about your super is always a wise first step.
What is an account-based pension?
When you start an account-based pension, you ask your super fund to transfer some or all of your super savings (capital) to an account within that fund.
Your capital is allocated according to the investment option or options you select from those offered by your super provider, for example, a specific managed fund or combination of funds.
The account-based pension pays you a regular income, and you can also withdraw lump sums when needed.
How much super can I move to an account-based pension?
The amount you can transfer to an account-based pension (or other "retirement phase income stream") is limited by your "personal transfer balance cap".
In 2026–27, your transfer balance cap could be between $1.6m and $2.1m, depending on your personal circumstances, so it is important to check the limit that applies to you.
If you have more super than your available cap, the excess may remain in a super accumulation account or be withdrawn.
These choices will have different financial impacts depending on your personal circumstances.
How much income do I receive?
Income from an account-based pension comes partly from investment returns and, at times, partly from your invested capital.
The better your investment returns, the less income is drawn from your capital and the longer your pension may last.
When you open an account-based pension, you generally choose how much income you would like to receive and how often, subject to your account balance, investment returns and the legislated minimum annual payment.
This minimum is based on your age and account balance at 1 July each year. For example, a 65-year-old must receive at least 5% of the account balance as income payments during the financial year.
How much risk is involved?
The value of an account-based pension can rise or fall over time, depending on how your chosen investments perform relative to the pension payments you receive.
Higher-risk investments tend to have more variable returns, so your account balance may increase or decrease significantly.
Lower-risk investments generally provide more stable returns, but they may not keep pace with inflation, meaning your income could gradually lose purchasing power over time.
Deciding how much risk you can tolerate in pursuit of an expected investment return is a very personal choice.
How are account-based pensions taxed?
A key attraction of an account-based pension, or any other type of retirement phase income stream, is its tax treatment.
Earnings on investments supporting an account-based pension are generally tax-free within the fund.
However, if you have more than $3m in total superannuation, you may be personally subject to some tax on earnings generated by the account-based pension.
Most people aged 60 or over do not pay tax on pension payments from a taxed account-based pension.
Can I switch funds if I am unhappy?
You may be able to change the investment options within your existing account-based pension or move the entire pension to another super pension provider, subject to your fund's rules.
However, these changes can sometimes involve hidden and costly traps.
Help is here
There are many other ways to access your super, for example, through annuities, innovative income streams, transition to retirement income streams or lump sums.
The range of options and decisions can feel overwhelming.
Contact our office if you would like comprehensive help exploring the retirement options best suited to your personal circumstances.