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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?
When it comes to superannuation, an account-based pension also known as allocated pension or super pension account are all basically the same thing and are often used interchangeably. At Prime Super, we call them income streams.
Our retirement income stream is a type of account-based pension. It 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.
If you’re exploring your options, it helps to understand the account-based pension (retirement income stream) rules, as these govern how much and how often you can withdraw from your super each year, and how your pension income is taxed.
How does an account-based pension (retirement income stream) 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(retirement income stream)
- withdraw your super as a lump sum
- a combination of both.
If you open an account-based pension (retirement income stream), 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.
An account-based pension (retirement income stream) gives you the flexibility to use your account as a regular income and also make additional withdrawals as needed.
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 (retirement income stream)and an age pension?
An account based pension (retirement income stream) is an account that is created from your super balance, remains invested and pays you a regular income. You can also withdraw lump sums if you wish from your retirement income stream. A Transition to retirement income stream is also an account based pension, but it has its own set of rules. Please refer to the Transition to retirement section below for more information. . The Age pension refers to the means-tested pension that is paid to eligible Australians after age 67.
Receiving an account-based pension (retirement income stream) from your super fund does not mean that you are automatically ineligible for the Age pension. 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 (retirement income stream) vs annuity
The difference between an account-based pension (retirement income stream) 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 pension with income stream 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 generally 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 (retirement income stream) 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 onwards. You can find the latest account-based pension (retirement income stream) 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.
