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 up to 14% from age 95+. Government temporary 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 1–3 years of expenses, so they don't 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 (Conservative, Balanced, Growth, High Growth) and a 'choose your own' menu.

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

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 (PDS) lists these. Small percentage differences compound meaningfully across 20+ years.

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 (dependant vs non-dependant under tax law) and the components of your account. Confirm current rules with the ATO before relying on any assumption.

Age Pension interaction

Account-based pensions are generally counted under the assets test, and their balance is 'deemed' to earn income for the income test. The test that produces the lower payment is the one that applies. See the Age Pension and your investments for a plain-English overview, and confirm current thresholds with Services Australia.

If you'd like a calm written summary covering these areas in one place, you can request your information pack.

Drawing income: how people commonly structure it

There is no single 'right' way to set up your payments. A common approach is to think in terms of three rough buckets. A short-term cash bucket covers the next year or two of expected drawdowns and sits in cash or a very defensive option, so day-to-day income isn't exposed to market swings. A medium-term bucket holds more conservative growth assets to top the cash bucket back up over time. A long-term growth bucket stays invested in higher-growth options because it isn't expected to be touched for many years.

Within those buckets, retirees commonly choose a regular payment frequency that mirrors their working-life pay cycle — monthly or fortnightly — simply because the rhythm is familiar. Others use larger quarterly payments to reduce admin. The frequency itself doesn't change how much you can draw; it just changes when the money lands in your bank account.

When markets fall, the temptation can be to lift drawdowns to 'make up' for a poor year, or to switch the whole balance to cash. Both reactions can work against a long retirement. A written plan — even a single page — that sets out when you would and wouldn't change your strategy can be more useful than any forecast.

Practical examples to think through

Example 1 — a single retiree in their late 60s. They hold their super in an account-based pension and draw the legislated minimum each year, supplemented by a part Age Pension. Because the minimum is a percentage of the balance, their dollar income moves with markets. Holding a small cash reserve outside super lets them keep drawings steady during a poor year rather than selling growth assets at a low point.

Example 2 — a couple in their early 70s. They each have an account-based pension and share household expenses. They review their drawdowns once a year, around tax time, and check whether their chosen investment option still matches their risk tolerance. A short annual conversation with a licensed adviser or their fund's helpline keeps the plan deliberate rather than drifting.

These examples are illustrative only. Your situation will be different — particularly around the Age Pension means tests, partner status, and whether you have other income such as part-time work or retirement income options.