Account-based pensions: 10 important facts to help you plan your retirement income

Important information and general advice disclaimer 

The information contained in this material is general in nature and has been prepared for educational and informational purposes only. It does not take into account your personal objectives, financial situation or needs and should not be regarded as personal financial advice. 

Before making any financial or investment decision, you should consider whether the information is appropriate to your circumstances and, where appropriate, seek professional financial advice. Where a financial product is referred to, you should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD), where applicable, before making a decision. 

While reasonable care has been taken in preparing this material, information may change over time. Any taxation, superannuation, Centrelink or other legislative information is based on our understanding of the relevant rules at the time of publication and may be subject to change. 

Tony Regan is an Authorised Representative (No. 243492) of Professional Investment Services pty ltd, Australian Financial Services License No. 234951.

As retirement approaches, one of the most important decisions you will make is how to use your super to support the lifestyle you want. Understanding your options can help you create a more flexible and sustainable retirement income.

Depending on your circumstances, you may be able to take your super as:

- a lump sum,

- an income stream,

- or a combination of both.

Briefly, those that choose to take their super benefits as a lump sum, can often do so for one or a combination of reasons. This is highlighted by the information available* on what these lump sums are reportedly used for:

For example, to:

- invest the money elsewhere/personal savings/bank,

- pay off home/pay for home improvements/buy new home,

- or roll it over/invest it in an approved deposit fund/deferred annuity or other super scheme.

For many retirees, combining a regular income stream with occasional lump sum withdrawals can provide both dependable income and flexibility. One option that supports this approach is an account-based income stream, also known as an account-based pension.

Account based income streams can be provided by self-managed super funds, public offer (retail) super funds, and certain employer and industry super funds.

Please note: For the purposes of this article, we are referring to retirement phase account-based income streams; rather than transition to retirement income streams, which are generally non commutable (i.e. provide income only and no ability to cash out a lump sum).

Please note: For the purposes of this article, we are referring to retirement phase account-based income streams; rather than transition to retirement income streams, which are generally non commutable (i.e. provide income only and no ability to cash out a lump sum).

With the above in mind, here are 10 important facts about account-based income streams:

1. For retirement purposes, to be eligible to commence an account-based income stream, you must meet a condition of release, such as:

- attaining age 65,

- termination of an employment arrangement after reaching age 60,

- or permanent retirement after reaching preservation age. Your preservation age is determined by your date of birth.

2. To commence an account-based income stream, you will need to transfer your super benefits to a retirement income stream.

3. A limit applies to the amount of super you can transfer into retirement phase to support account-based income streams. This is known as your personal transfer balance cap. The general transfer balance cap is $2.1 million for the 2026–27 financial year, although your personal cap may be lower depending on when you first commenced a retirement phase income stream and how much of your cap you have previously used. The general transfer balance cap increase, but not on a fixed schedule; it rises periodically on July 1st whenever inflation growth reaches a level that triggers a $100,000.

Please note: If you have not previously used all of your personal transfer balance cap, you may be entitled to proportional indexation when the general transfer balance cap increases. Investment growth or losses within your retirement phase account do not, by themselves, affect your transfer balance account.

4. Contributions or rollovers, can’t be made to an account-based income stream once it has been commenced; regardless of whether the amount within the account-based income stream drops below the transfer balance cap.

5. Investment income and capital gains from the assets supporting an account-based income stream are exempt from taxation.

6. An account-based income stream generally allows you to choose your income payments and make lump sum withdrawals, with no maximum withdrawal limit once you are in retirement phase. However, you must receive at least the prescribed minimum pension payment each financial year. The minimum is calculated using your age and account balance.

Please note: Partial commutations and other lump sum withdrawals do not count towards the minimum annual pension payment.

7. Income payments from an account-based income stream must be received once per financial year, (except for the first financial year if you commence the income stream in June). You can elect to receive your income payments fortnightly, monthly, quarterly, half-yearly, or yearly.

8. If you are aged 60 or over, payments and lump sum withdrawals from an account-based income stream are generally tax-free when paid from a taxed super fund. Different tax rules may apply to untaxed funds and certain defined benefit interests.

9. Upon commencing an account-based income stream, you can elect to have the income stream transferred and income payments continue to be paid to an eligible dependant following your passing. This is referred to as a reversionary beneficiary nomination.

10. Investment returns, the income payments amount you choose to be paid, and any lump sum withdrawals you choose to make will ultimately determine the length of time that an account-based income stream lasts.

An account-based pension can provide flexibility and control, but the right structure and level of income will depend on your goals, spending needs, investments and other sources of retirement income. If you would like help understanding how these rules apply to you, please contact us to arrange a conversation about your retirement income options.

Accuracy of information disclaimer: While reasonable care has been taken to ensure the information in this article is accurate and current at the date of publication, superannuation, taxation and related laws, thresholds and administrative practices may change. We do not guarantee that the information is complete, current or free from error. You should confirm the latest requirements with the relevant government authority or seek professional advice before relying on this material.