How does this retirement income stream work?
An Account-based Pension is often also referred to as an Allocated Pension. It is a regular income stream which is drawn down from the savings you have accumulated in your superannuation fund. This drawdown (or decumulation) can occur when you reach preservation age, which is between 55 and 60, depending upon your year of birth. Preservation Age is currently 58 but increasing to 60 by 2024.
Many people choose an Account-based Pension as a way of withdrawing their super. It is common to establish this pension with your existing super fund, be it a retail, industry or Self-Managed Super Fund (SMSF). But you do not have to do this. You can, instead, choose to invest in an Account-based Pension with another fund, without penalty. There are more than 60 such providers in the Australian market if you do wish to open an Account-based Pension with a different fund.
Benefits of an Account-based Pension
These income streams are very popular as they are flexible, payments can be organised to be made in the same way as a workplace salary, making household budgeting easier, and they can be structured in a way which is tax-effective.
How do you know how much to ‘pay’ yourself?
This is where judicious planning is important. Many people can reach their preservation age and reward themselves with a lump sum payment from their super plus a generous ‘wage’ in the form of an Account-based Pension, only to find their life savings dwindling at an alarming rate. There are two top level considerations here. You can do your own sums as to how long you think your pension payments will last, or you can work with an experienced financial adviser to test your calculations. ASIC has a calculator which allows you to work out the rate at which you can withdraw these regular payments.
There is another, mandatory consideration when it comes to withdrawals, and this is the ASIC listed minimum drawdown, activated when you reach preservation age and access your savings. The current minimum drawdowns are:
| Age | Annual payment as a % of account balance |
| Under 65 | 2% (4% from 1/7/23) |
| 65-74 | 2.5% (5% from 1/7/23) |
| 75-79 | 3% (6% from 1/7/23) |
| 80-84 | 3.5% (7% from 1/7/23) |
| 85-89 | 4.5% (9% from 1/7/23) |
| 90-94 | 5.5% (11% from 1/7/23) |
| 95+ | 7% (14% from 1/7/23) |
Minimum drawdowns were adjusted by the Federal Government in order to help manage the effects of Covid). These minimum withdrawal rates will revert to their pre pandemic levels from the 1st July 2023.
Fees
Fees on these funds vary widely, so it is important to do your research before deciding which fund you wish to invest in, and which level of investment (or investment profile) you wish to select. Your investment profile (cash, conservative, moderate, balance and growth) can attract differing fees as well. The fees charged can include administration fees, super fund member fees, as well as investment management fees, perhaps even a performance fee. For this reason it is critical that you are aware of, and comfortable with, all fees (which must be listed in the Product Disclosure Statement) before you invest.
How does Centrelink view my Account-based Pension?
This is where it gets slightly tricky. The account balance of your pension is subject to the assets test. Deemed income from that asset will also be included in the income test.
Commonwealth Seniors Health Card
From 1 January 2015, the deemed income from Account-based pensions has been included in the income test for the CSHC. Account-based annuities are also included.
Estate Planning
After you die, money in your super account will go to your estate. There will be different outcomes depending upon whether you nominated a ‘reversionary beneficiary’ or a spouse or dependent as a beneficiary. It is vital that you seek qualified legal advice in order to understand these options and define which nomination is most appropriate in your situation.
In summary, whilst Account-based pensions are the most common form of superannuation drawdowns, it doesn’t mean that the rules are easy to understand.
If you have questions regarding the interaction between the Age Pension and an Account-based pension, it may assist to book a consultation with one of our experienced customer service team.
Should you wish to explore options regarding your drawdown, which are not necessarily Age Pension related, then a consultation with our independent financial advisers may help with your understanding of the rules.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
Tks staff good info and reminders of directions
Great info! Interested in comments re Super beneficiary item. Seems Govt gets >30% of remainder if a single doesn’t have a direct dependent to will it to, and leaves it to adult family members. Is that correct? So what’s a Reversionary beneficiary please?
Hi Brigitte, thank you for reaching out for help planning your retirement. For you and anyone else who would like to have a discussion with someone they can trust about retirement we do offer financial advice consultations.
Our financial advice consultations are designed to help you better understand your needs and goals in retirement and some of the actions you can consider to help you achieve those goals. The consultation is online, goes for up to 45 minutes and costs $150.
The discussion will:
* Provide you with the opportunity to ask questions to understand if you are on the right track.
* Help you feel reassured that you can plan the future you envisage.
* Have confidence in knowing that you have a clear understanding of the rules and impacts for you.
* Explore options available to you for your next steps.
As advised above we charge $150 (inc GST) for the 45 minute discussion, CLICK HERE to book now.
It’s worth mentioning that earnings on a normal (accumulation) Super account are taxed at 15% while earnings on an Account-based Pension account are tax-free.
In addition, you are not locked in to the Pension account – while there is a Govt minimum withdrawal amount there is no maximum. (But best to confirm with your Super fund).
Centrelink treat both accounts the same for the assets test and deemed income (although note they have a slightly confusing way of recording the Pension account on your records – it’s not recorded under the Super account section).
BTW, if someone is still working and has a normal (taxable) accumulation account, compulsory super will be paid into that, while the separate Pension account gives a tax-free return. There is also nothing stopping you from taking the minimum drawdown from the Pension account and paying it straight back in to the accumulation account (subject to normal age and maximum-amount limits) if you want to.
So there are definitely lots of benefits in an Account-based Pension account!
(The above is based on my recent research and experience but always check carefully what applies in your own circumstances).
I have not been found eligible for Centrelink pension payments. I have a transition to retirement account and still working full time. I draw a minimum amount from tne transition to retirement every year. Will it benefit me to close transition to retirement account Is the amount drawn added to your income for Centrelink testing of income.
Hi Sabita, the funds you draw down from your transition to retirement account are not assessed as income. Centrelink look at the total balance in the account and assess it as an asset.
I am 69 years and centrelink deem i am not elligable for age pension due to the amount of super i have accumulated. (1.6mil)
I know others with similar amounts and have been granted the age pension. I have worked and paid taxes for 55yrs. NOT FAIR.
Hi Paul, the highest possible threshold (which is for couples who are non-homeowners) is $1,108,000. Perhaps these people you know of have a partner who is under Age Pension age and the bulk of their super is accumulating in the younger partner’s name, making it exempt from assessment until they turn Age Pension age.
Hi Paul,
the aged pension as its wrongly refered to is means tested making it welfare, it seems a bit rich “pardon the pun” to be asking for welfare with all that savings
I checked the ASIC Account Based Pension calculator to see how long my super would last.
I entered a 4% per annum draw down and was shocked by the result that my super would run out by age 79 even though my super would grow by 5% per annum
Even if there is a yearly fee, surely my super balance would stay level, or even grow rather than running out
Am I missing something here
Hi Billy, well done on proactively trying to take charge of your future! The ASIC calculators are very conservative in their estimations. ASIC minus 0.85% for fees, 2.5% for inflation, and 1.5% for cost of living increases, meaning a 4.85% reduction before factoring in your actual drawdown amount. Therefore based on ASIC’s model you’d have to be getting a return of 8.85% or more each year to cover your 4% drawdown and the costs they are factoring in.