Account-Based Pensions Explained: A Plain-English Guide for Australians

The basics

When you reach your preservation age and meet a condition of release — commonly, retirement — you can move part or all of your super into an account-based pension. The balance stays invested in your chosen options, and you draw a regular income from it.

Each year the government sets a minimum percentage you must draw, based on your age. There is no maximum other than your balance. You can usually choose the payment frequency — monthly, quarterly or annually.

Minimum drawdown rates

Minimum drawdowns step up as you get older. As a general indication only, the standard rates start at around 4% under age 65 and increase in bands to 14% from age 95. Temporary government reductions have applied in the past — always confirm the current rate with the ATO or your fund.

If your balance falls, your dollar drawdown can also fall, because the minimum is a percentage. This is one reason some retirees keep a cash bucket covering one to three years of expenses, so they do not need to sell growth assets in a downturn.

Investment options and risk

Your balance is invested in markets — typically a mix of Australian and international shares, property, infrastructure, fixed interest and cash. Most funds offer pre-mixed options and a choose-your-own menu.

Returns are not guaranteed. The same balance invested in different options can produce very different outcomes across a long retirement. Understanding the trade-off between expected return and short-term volatility is central to choosing an option that fits your timeframe.

Fees and costs to check

Account-based pensions usually carry an administration fee, investment fees that vary by option, and sometimes transaction or activity-based fees. The product disclosure statement lists these. Small percentage differences compound meaningfully across 20 years or more.

Lump sums, beneficiaries and estate planning

Most account-based pensions allow lump-sum withdrawals on top of regular payments, subject to fund rules. You can usually nominate beneficiaries — a binding nomination is generally the most certain way to direct your remaining balance, but it must be kept current.

Tax treatment of payments to beneficiaries depends on who they are under tax law and on the components of your account. Confirm current rules before relying on any assumption.

Age Pension interaction

Account-based pensions are generally counted under the assets test, and the balance is deemed to earn income for the income test. The test that produces the lower payment is the one that applies.

Thresholds change regularly. Confirm the current figures with Services Australia before assuming an outcome.

How people commonly structure their income

There is no single right way to set up payments. A common approach uses three rough buckets: a short-term cash bucket covering the next year or two of drawdowns, a medium-term conservative bucket that tops the cash back up, and a long-term growth bucket that is not expected to be touched for many years.

Within that, people often choose a payment frequency that mirrors their working-life pay cycle, simply because the rhythm is familiar. Frequency does not change how much you can draw; it changes when the money lands in your bank account.