Why you should commence an Account Based Pension
Commencing an Account Based Pension will ensure the earnings of your fund remain tax free for the remainder of your life as well as providing a regular income stream to maintain your lifestyle in retirement.
Benefits of Account Based Pension
The income drawn from your Account Based Pension will help you meet your retirement expenditure.
You can vary the amount of income you draw from your Account Based Pension each year and make lump sum withdrawals to meet your changing needs at any time.
If you are over age 60, the income you receive from your Account Based Pension is not taxable and does not need to be included in an income tax return.
You will pay less tax as your retirement savings will be held in a tax-free environment. The investment earnings and realised capital gains within the pension are tax exempt, compared to being taxed at up to 15% in your superannuation account.
Your Account Based Pension can be setup to continue your nominated beneficiary in the event of your death.
You must draw at least the minimum pension payment each year. The minimum payment amount is based on your age and your account balance. This is shown in the table below:
Age Minimum Payment
60-64 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95+ 14%
Things you should consider
The level of pension income you are withdrawing from your Account Based Pension should be reviewed on an annual basis to ensure it meets both minimum pension requirements and your expenditure needs.
If you choose to withdraw more than the recommended income payment, your balance will reduce at a faster rate and your funds may not last as long.
Account Based Pensions are subject to a Transfer Balance Cap (TBC) of between $1,600,000 and $1,700,000. This is set to increase to $1,900,000 from 1 July 2023. The exact TBC available to you will vary based on your personal circumstances. Any excess over your personal TBC will need to be retained in superannuation or withdrawn. Penalties may apply for exceeding the cap.
There is no guarantee that your funds will last as long as you need them. Investment returns and the level of income you elect to receive will have a direct impact on your account balance and the pension’s longevity.
Minimum payments are pro-rated when the Account Based Pension commences part way through the financial year.
There may be associated costs and other implications relating to the commencement of your Account Based Pension
Account Based Pensions are considered a financial investment for Centrelink purposes. Your pension account balance is subject to deeming under the Income Test and is fully assessable under the Assets test.
Account Based Pensions can only be purchased with money from superannuation.
When you die the proceeds from your superannuation and pension accounts may be subject to tax if they are paid as a lump sum to non-dependents, as defined for tax purposes. Broadly, the amount of tax payable (including Medicare Levy)* will be as follows:
Component Tax Rate
Taxable Component (Taxed Element) 17%
Taxable Component (Untaxed Element) 32%
*Where your benefits are paid to your estate, this tax treatment may differ slightly.