- Decide how much of your super to move into the 'pension phase' (keeping within the balance transfer cap).
- Choose the amount and frequency of your payments (within the allowed limits).
- Select how you want your pension to be invested.
- The amount of super you transfer into your pension account
- The annual amount you withdraw
- Investment returns on your super
- Fees associated with managing your account
An account-based pension allows you to turn your superannuation into a regular, flexible and tax-effective income stream once you turn 60 and retire. In this article, we'll break down how account-based pensions work, including key considerations like minimum withdrawal amounts, payment frequency and how long your pension might last.
What is an Account-Based Pension (ABP)?
An Account-Based Pension (ABP) is a flexible retirement income stream available to individuals who've fully retired or met a condition of release. It allows retirees to draw down regular payments from their superannuation savings, with no upper limit on withdrawals (subject to minimum annual withdrawal requirements based on age). Unlike a Transition to Retirement (TTR) pension, ABP provides greater flexibility and is not subject to the 10% cap on withdrawals.
If you're interested in learning more about TTR, please read our Transition to Retirement article.
How an account-based pension works
An account-based pension, also known as an allocated pension, is a consistent income stream funded by your superannuation when you retire. With this option, you have the flexibility to:
Minimum amount of money to withdraw
There are specific minimum drawdown rates set by the Australian Government that vary based on your age. The purpose of these minimums is to ensure that retirees access a portion of their super savings while still preserving enough funds for future needs.
| Age | Minimum annual payment as % of account balance |
| 60-64 | 4% |
| 65-74 | 5% |
| 75-79 | 6% |
| 80-84 | 7% |
| 85-89 | 9% |
| 90-94 | 11% |
| 95+ | 14% |
Frequency of payments
Generally, you can arrange for payments to be made monthly, quarterly, semi-annually or annually. These payments will continue until your account balance is depleted or you decide to withdraw the remaining balance as a lump sum.
How long your pension lasts
The longevity of your account-based pension depends on several factors:
Qualifying for the Age Pension
Eligibility for the Government Age Pension is determined by your age, assets and income. Your account-based pension will be considered in the income and assets tests used to assess your eligibility.
Your account-based pension after you die
The remaining balance in your super account after your death will go to your beneficiary or your estate:
- If you designated a 'reversionary beneficiary', they would continue to receive pension payments until the account is exhausted. If the beneficiary is a child, they will receive payments until age 25, after which the remaining balance is paid out as a lump sum.
- If you nominated a spouse or dependent as a beneficiary, they have the option to receive your death benefit as either a pension or a lump sum. A non-dependent beneficiary can only receive the benefit as a lump sum.
Pros and cons of an account-based pension
Before deciding if an account-based pension is right for you, consider the following advantages and disadvantages:
Pros
- Flexible payments: You can choose a payment schedule that suits you, within the allowed minimum and maximum limits.
- Supplement the Age Pension: If eligible, you may use your account-based pension to increase your income.
- Tax benefits: Pension payments are tax-free from age 60. For those aged 55 to 59, the taxable portion of your pension is taxed at your marginal rate, with a 15% tax offset.
- Lump sum withdrawals: You can withdraw some or all of your money whenever you wish.
- Tax-free investment earnings: Your investment returns are added to your account and you can choose how your funds are invested.
- Estate planning: Any remaining balance can be left to your beneficiary.
Cons
- Impact on Government Age Pension: Your account-based pension is included in the income and assets tests, which may affect your eligibility.
- Investment risk: The value of your investment earnings may decrease depending on market conditions.
- Longevity risk: There's no guarantee your super balance will last your entire lifetime.
How Gallagher can help
Wherever you are on your financial journey, from early career to retirement, we can help you plan and adjust to changes when 'life' happens.
From busy individuals to those with complex business or personal situations, our advisers can help you achieve your financial goals by bridging the gap of where you are today and where you want to be tomorrow. Get in touch today.
