An account-based pension (or allocated pension) is a regular income stream bought with money from your super when you retire. Typically, you get to choose: how much you want to transfer to the 'pension phase' (subject to the balance transfer cap)
Don't worry too much about the terminology - they are exactly the same thing: you start accessing your super via regular payments while the balance remains invested. An account-based pension, (also known as an income stream) is a regular retirement income provided by your super fund.
The main benefit of choosing an account-based pension relates to the tax savings. An account-based pension can be more tax-effective than taking your super as a lump sum. The earnings from investments in your account are tax-free. These tax-free earnings remain in your account and increase the account balance.
An account based pension is a retirement income option which allows you to draw a regular income stream from your super. This means you don't have to take your super as a lump sum. Your money stays invested, and can continue to benefit from any potential returns your fund may make.
Starting an income stream
Income streams from an SMSF are usually account-based, which means the amount supporting the pension is allocated to a member's account. An income stream is a pension if the payments occur at least annually and, for an account-based pension, a minimum amount is paid to the member each year.
Account based pensions are assessed under the deeming rules for Centrelink/DVA income test for income support payments such as Age Pension, Service Pension, Disability Support Pension, and Carers Payment. This assessment also applies for some other payments and allowances.
Impact on Age Pension – your account-based pension forms part of the income and assets tests, so it may affect your eligibility. Investment earnings may go down in value — depending on market performance. Longevity risk – there's no guarantee your super balance will last as long as you do.
Each year you can withdraw as much as you like through your account-based super income stream (unless you're receiving a transition to retirement income stream). You must withdraw a minimum amount each year – based on your age and account balance.
Yes, provided you have reached the Age Pension age, you may be eligible for the Age Pension even if you have super savings.
Apart from TelstraSuper, two funds – UniSuper and Australian Retirement Trust (ART) QSuper – have been out and out champions in the pension space. (QSuper and Sunsuper, also a previous winner, recently merged to form the Australian Retirement Trust.) Prior to the 2023 awards, QSuper had won the top award six times.
The Transfer Balance Cap is $1.7 million for the 2022 / 2023 financial year. This represents the maximum amount you can use to commence an account based pension.
There are no maximum payment limits for account-based pensions. Under a Transition To Retirement (TTR) pension the maximum you can withdraw is 10% of the balance of your account when you commence your TTR pension or at the beginning of subsequent financial years.
Account Based Pensions. For an account based pension, also referred to as an allocated pension, a minimum amount is required to be paid each year, with no maximum except for transition to retirement pensions which are limited to 10% of the account balance.
Once you start drawing a super pension, both the earnings on investments in your pension account and the income you receive is tax free from age 60. If you are above the preservation age but under 60, the taxable portion of your pension income is taxed at your marginal rate less a 15% tax offset.
You can access your super and start an account-based pension when you reach your preservation age and retire, which is between 55 and 60 depending on when you were born. You can also have an account-based pension as part of your transition to retirement (TTR) arrangements, while continuing to work.
The difference between an annuity and an account-based pension. Share market performance doesn't affect annuity returns. This makes an annuity one of the more stable retiree investment options. With an account-based pension, your money is invested in a range of investments, including shares, property and bonds.
Assume, for example, you will need 65 per cent of your pre-retirement income, so if you earn $50,000 now, you might need $32,500 in retirement.
How much super you'll need in retirement depends on the lifestyle you want. According to the government's MoneySmart website, if you own your home, the rule of thumb is that you'll need two-thirds (67%) of your current income each year to maintain the same standard of living.
A monthly pension payment gives you a fixed amount every month over your whole life, so you don't have to worry about changes in the stock market. In contrast, a lump-sum payout can give you the flexibility of choosing where to invest or save your money, and when and how much to withdraw.
If you're aged 60 or over and withdraw a lump sum: You don't pay any tax when you withdraw from a taxed super fund. You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.
You can access your super when you: reach your preservation age and retire. reach your preservation age and choose to begin a transition to retirement income stream while you are still working. are 65 years old (even if you have not retired).
Assets Test
A single homeowner can have up to $656,500 of assessable assets and receive a part pension – for a single non-homeowner the higher threshold is $898,500. For a couple, the higher threshold to $986,500 for a homeowner and $1,228,500 for a non-homeowner.
The drawbacks of taking a lump sum
Pension value can decrease: If you choose to withdraw and hold the money in cash, for example in a savings account, the value can decrease in real terms. It can mean your spending power falls, in turn, affecting your retirement lifestyle.
The deductible amount is also the tax free component of your income stream. There is a 10% cap of the income stream's gross payments for the deductible amount for defined benefits.