Turning your super into an income: how account-based pensions work
For most of your working life, super is about one thing: growing the balance. Retirement flips the question on its head. Suddenly it's not “how do I build this up?” but “how do I turn it into a regular pay cheque that lasts?” For hundreds of thousands of Australians, the answer is an account-based pension — and understanding how one works is one of the most useful things you can do as retirement comes into view.
What is an account-based pension?
An account-based pension (sometimes called an allocated pension) is simply a super account that pays you an income in retirement. You move some or all of your super into a retirement account, it stays invested in options you choose, and you draw regular payments — fortnightly, monthly or quarterly — straight into your bank account.
You decide how much to take (above a set minimum) and how often. Because the money stays invested, your balance rises and falls with investment returns and the amounts you withdraw. That's the key thing to understand: an account-based pension is not a guaranteed income for life. It keeps paying until the account runs out, so how you invest it and how much you draw both matter enormously.
When can you start one?
Two things need to line up. First, you need to have reached your preservation age — now 60 for everyone. Second, you need to have met a condition of release: usually retiring, leaving a job after age 60, or simply turning 65 (at which point you can access your super whether you're working or not).
There's a nice tax bonus once you're over 60: income you draw from a taxed super fund is tax-free, and it doesn't even need to be declared in your tax return. For many retirees, that makes an account-based pension a very tax-effective way to fund day-to-day life.
The tax-free advantage — up to a limit
While your super sits in the accumulation phase, its investment earnings are taxed at up to 15%. Once it moves into a retirement-phase account-based pension, those earnings are taxed at 0%. It's one of the most generous concessions in the system.
There is a ceiling, though. The transfer balance cap limits how much you can move into the tax-free retirement phase. From 1 July 2026 the general cap rose to $2.1 million (up from $2 million), and it's indexed over time to keep pace with inflation. Your own personal cap depends on when you first started a retirement pension, so it won't be exactly $2.1 million for everyone. Anything above your cap can stay in super — it just remains in an accumulation account taxed at up to 15%.
How much must you draw each year?
The government sets a minimum you must withdraw each financial year, worked out as a percentage of your account balance that rises with age. The minimum is recalculated on 1 July each year, and in the year you start the pension it's pro-rated for the number of days left in the year.
| Your age | Minimum drawdown |
|---|---|
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 or more | 14% |
So a 66-year-old with $200,000 in an account-based pension must draw at least 5% — that's $10,000 — over the year. There is no maximum for a retirement-phase pension; you can take more whenever you need it. (The one exception is a transition-to-retirement pension, which caps withdrawals at 10% a year until you fully retire.) If you don't withdraw at least the minimum, your pension can lose its tax-free status, so it's worth staying on top of.
Making the money last
The minimum is a legal floor, not a recommendation. Drawing only the minimum may leave you living too frugally; drawing too much risks running short later. Two real risks sit behind this balancing act: longevity (none of us knows how long we'll need the income) and sequencing risk (a market fall in the early years of retirement, when you're also drawing down, can do lasting damage). Your investment mix, your drawdown rate, and how your pension works alongside any Age Pension all feed into whether the money lasts the distance.
None of this needs to be daunting. With a clear plan — the right structure, a sensible drawdown, and a regular review — an account-based pension can turn a lifetime of super into a steady, tax-effective income you can count on. That's exactly the kind of retirement roadmap we help people build every day.
General information only — not personal financial advice. It doesn't consider your objectives, situation or needs. Consider whether it's right for you and seek advice before acting.
Jason Bell and Compass Retirement and Aged Care are Authorised Representatives of Millennium3 Financial Services Pty Ltd (AFSL 244252).
Source: Australian Taxation Office, “Income stream (pension) rules and payments” and “General transfer balance cap indexation on 1 July 2026”, 2026. https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/paying-smsf-benefits/income-stream-pension-rules-and-payments · https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-newsroom/general-transfer-balance-cap-indexation-on-1-july-2026 · SuperGuide, “Minimum pension drawdown rates (2026–27)”, https://www.superguide.com.au/in-retirement/minimum-pension-payments-reduced
