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An Account-Based Pension (ABP), sometimes called an allocated pension, is the most common way Australians convert their superannuation savings into a regular income stream in retirement. Once you have reached your preservation age and met a condition of release, you can transfer some or all of your accumulated super balance into an ABP account, from which you draw regular payments to fund your retirement lifestyle. The key advantage of the ABP is the tax treatment: once your super savings are in pension phase, all investment earnings within the fund — including dividends, interest, and capital gains — are completely tax-free. This contrasts with the accumulation phase, where earnings are taxed at 15%. This tax-free status can significantly increase the longevity of your retirement savings because more of your investment returns remain in your account. To ensure pension savings are actually drawn down over time (rather than being used purely as a tax shelter), the government mandates a minimum annual drawdown percentage that increases with age. For members aged 60–64, the minimum is 4% of the account balance at the start of each financial year. This percentage steps up through 5%, 6%, 7%, 9%, and 11% for successively older age bands, reaching 14% for those aged 95 and over. The Transfer Balance Cap (currently $1.9 million) limits how much super you can move into the tax-free pension phase. Any excess remains in accumulation phase and continues to be taxed on earnings. A reversionary pension nomination allows your ABP to continue for a surviving spouse or dependent on your death, providing ongoing income rather than a lump-sum death benefit.
Minimum Annual Drawdown = Opening Account Balance × Minimum Drawdown Rate (%); Account Balance (end of year) = Opening Balance − Drawdowns + Net Investment Returns
- 1Reach your preservation age — for people born after 30 June 1964, this is age 60 — and satisfy a condition of release such as retirement or reaching age 65.
- 2Check your available Transfer Balance Cap space. The general Transfer Balance Cap is $1.9 million (from 1 July 2023). You can only move up to this amount into tax-free pension phase across all your ABPs.
- 3Instruct your super fund (or SMSF) to commence an Account-Based Pension by completing a pension commencement form. You specify how often you want to receive payments (monthly, quarterly, or annually) and the payment amount, subject to the minimum.
- 4At the start of each financial year (or when the pension commences mid-year, on a pro-rata basis), the fund calculates your minimum drawdown by multiplying your account balance by the applicable age-based percentage.
- 5The fund invests your ABP balance according to your chosen investment option. All earnings — dividends, interest, rent, and capital gains — accumulate tax-free within the fund.
- 6Each year you receive at least the minimum drawdown amount, which is deposited into your nominated bank account. You may take more than the minimum at any time, but not less.
- 7If you die while the ABP is in place and you have a reversionary beneficiary nominated, the pension automatically continues to your spouse or eligible dependent at the same rate, subject to their own Transfer Balance Cap space.
Earnings on the $600,000 are tax-free once in pension phase
$600,000 × 5% = $30,000 per year minimum. The member may choose to draw more if needed. All earnings on the account are tax-free, making the $600,000 work harder than in accumulation phase.
The excess $500,000 cannot move into pension phase and continues to be taxed at 15% on earnings
The Transfer Balance Cap prevents unlimited amounts from benefiting from the tax-free pension environment. Only $1.9M qualifies; the remaining $500,000 stays in accumulation phase.
Government policy requires higher drawdowns at older ages to ensure super is used for retirement income
$400,000 × 7% = $28,000. As age increases, the mandatory drawdown rate rises, gradually depleting the pension balance over the member's retirement years.
The reversionary pension must be reviewed within 12 months for Transfer Balance Cap purposes
The ABP continues automatically to the reversionary spouse. The spouse's Transfer Balance Cap is credited with $350,000. They must draw at least $350,000 × 5% = $17,500 per year.
A 65-year-old retiring with $800,000 in super commences an ABP, drawing $40,000 per year (5% minimum) to supplement their lifestyle, with all investment earnings growing tax-free within the fund, enabling practitioners to make well-informed quantitative decisions based on validated computational methods and industry-standard approaches
A couple both commence ABPs on retirement — one with $1.9M and the other with $900,000 — maximising the amount in tax-free pension phase and minimising tax on investment returns.
A retiree uses partial commutation to return money from their ABP to accumulation phase, freeing up Transfer Balance Cap space to manage their Centrelink income test position, allowing professionals to quantify outcomes systematically and compare scenarios using reliable mathematical frameworks and established formulas
An SMSF trustee commences an ABP for one member who has retired while the other member continues working in accumulation phase, requiring the fund to calculate a tax-exempt proportion for investment income.
A surviving spouse automatically receives a reversionary pension from their deceased partner's ABP, providing continuity of income without needing to re-invest or navigate the superannuation system in a time of grief.
Transition to Retirement Income Stream (TRIS)
A TRIS allows you to access super between preservation age and age 65 while still working. Unlike a full ABP, a TRIS has a maximum drawdown of 10% of the balance, and earnings within a TRIS are taxed at 15% — not tax-free — until you fully retire or turn 65, at which point it converts to a full ABP.
SMSF Account-Based Pensions
Self-Managed Super Funds (SMSFs) can run ABPs for their members. The SMSF must formally resolve to commence the pension, update the fund's deed if necessary, and prepare actuarial certificates if the fund has both accumulation and pension members. Separate bank accounts and record-keeping for pension assets are best practice.
Commutation (Stopping the Pension)
You can commute (stop) an ABP at any time and roll the remaining balance back to accumulation phase, or take it as a lump-sum cash payment. A commutation back to accumulation debits your Transfer Balance Account, freeing up cap space that could be used to start a new pension later.
Death of Reversionary Beneficiary
If a reversionary beneficiary receives a pension and later dies, the pension cannot be passed on to a third party (unless to a financially dependent child under 25). The remaining balance must be paid out as a lump-sum death benefit to the estate. Careful estate planning is essential for couples with significant super balances.
Pro-Rata Minimums in Commencement Year
When an ABP commences part-way through a financial year, the minimum drawdown for that year is calculated on a pro-rata basis — the full-year minimum is multiplied by the number of days remaining in the financial year divided by 365. This reduces the mandatory payment in the first year.
| Age | Minimum Annual Drawdown Rate |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95 and over | 14% |
What is the preservation age for accessing super as an Account-Based Pension?
The preservation age depends on your date of birth. For anyone born on or after 1 July 1964, the preservation age is 60. For people born before that date, it ranges from 55 to 59. Reaching preservation age alone is not enough — you must also satisfy a condition of release, such as retiring from the workforce or reaching age 65.
Are Account-Based Pension payments taxed?
For members aged 60 and over, ABP payments are completely tax-free. For members aged between preservation age and 60, payments consist of a tax-free component and a taxable component, with the taxable component taxed at marginal rates less a 15% tax offset. Once you turn 60, all payments become tax-free regardless of the components.
What are the minimum drawdown rates for an Account-Based Pension?
The minimum drawdown rates are: age 60–64: 4%; age 65–74: 5%; age 75–79: 6%; age 80–84: 7%; age 85–89: 9%; age 90–94: 11%; age 95 and over: 14%. These rates are set by legislation and apply to the account balance at the start of each financial year. Temporary 50% reductions applied during COVID-19 but have since ended.
Is there a maximum amount I can withdraw from an Account-Based Pension?
No. There is no legislated maximum withdrawal amount. You can withdraw any amount above the minimum — including the entire balance — at any time. However, withdrawing large amounts reduces your future tax-free investment earnings and may affect your ability to re-contribute due to contribution caps. Understanding this aspect of australia super pension is important for obtaining accurate and meaningful results in both clinical and analytical contexts.
What is the Transfer Balance Cap and how does it affect my pension?
The Transfer Balance Cap (TBC) is the maximum amount of super you can transfer into the tax-free pension phase. The general TBC is $1.9 million (from 1 July 2023). Once you start a pension, a 'transfer balance account' tracks credits (amounts moved into pension phase) and debits (pension payments returned to accumulation or taken as lump sums). Exceeding the cap triggers excess transfer balance tax.
Can I have more than one Account-Based Pension?
Yes, you can have multiple ABPs, for example in different super funds. However, all of them together count against your single Transfer Balance Cap. The total amount across all pensions cannot exceed the TBC at the time you commenced each one. Understanding this aspect of australia super pension is important for obtaining accurate and meaningful results in both clinical and analytical contexts.
What happens to my Account-Based Pension when I die?
Your ABP can be paid as a lump-sum death benefit to your estate or beneficiaries, or it can continue as a reversionary pension to an eligible dependant (typically a spouse or financially dependent child). A reversionary pension is nominated in advance and allows the income stream to continue seamlessly, though the recipient's Transfer Balance Cap is affected.
Does ABP income affect the Age Pension from Centrelink?
Yes. ABP payments are assessed under both the Centrelink income test (using a deemed rate of return on the account balance, not actual drawdowns) and the assets test (the account balance counts as an assessable asset). This can reduce or eliminate your eligibility for the Centrelink Age Pension, so it is important to model both scenarios before commencing an ABP.
Pro Tip
Consider the timing of when you commence your ABP carefully. Starting on 1 July rather than late in the financial year means you benefit from a full year of tax-free earnings immediately, and the pro-rata minimum in the first year is maximised (i.e., a full 12-month minimum applies). Also review your investment options at commencement — a pension portfolio may benefit from more income-focused assets to support regular drawdowns.
Did you know?
The tax-free status of earnings within an Account-Based Pension phase is one of the most generous tax concessions in Australia's tax system. For a retiree with $1.9 million in pension phase earning 7% per year, the tax saving on investment earnings (compared to accumulation phase at 15%) amounts to approximately $19,950 per year — essentially the government subsidises retirement savings growth.