When you retire, you don’t have to pull your super out as a lump sum. The most common way to turn super into a regular income is an account-based pension (also called an allocated pension or retirement income stream). Here’s how it works.
What an account-based pension is
You move some or all of your super from the accumulation phase into a retirement (pension) phase account. Your money stays invested, and you draw a regular income from it — fortnightly, monthly or however you choose — until the balance runs out. You keep control of how it’s invested and can usually take extra lump sums when you need them.
The big tax advantage
Once you’re over 60 and retired, income from an account-based pension is generally tax-free, and the investment earnings inside the pension account are also tax-free (versus 15% in accumulation phase). This is one of the most tax-effective structures in the Australian system — but it’s capped.
The transfer balance cap
There’s a limit on how much you can move into the tax-free retirement phase, called the transfer balance cap. From 1 July 2026 the general cap is $2.1 million per person. Amounts above your cap have to stay in accumulation (taxed at 15% on earnings) or outside super.
Minimum drawdown rates
The government requires you to draw a minimum percentage of your account balance each year, which rises with age:
| Age | Minimum annual drawdown |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95 or over | 14% |
Standard minimum drawdown factors. Verify current rates at ATO / Moneysmart.
Account-based pension vs lump sum
- Account-based pension — regular tax-free income (over 60, retired), money stays invested and keeps growing, you retain flexibility. Best for most people.
- Lump sum — useful for paying off debt or a big one-off, but once it’s out of super it loses the tax-free earnings environment and can affect Age Pension differently.
Deciding how much to move into pension phase, how to invest it, and how much to draw is exactly the kind of decision a complimentary review is built for.
Frequently asked questions
How does an account-based pension work?
You transfer super into a retirement-phase account, keep it invested, and draw a regular income until the balance is exhausted. Over 60 and retired, both the income and the investment earnings are generally tax-free.
How much can I put into an account-based pension?
The general transfer balance cap is $2.1 million per person from 1 July 2026. Amounts above your personal cap must stay in accumulation phase or outside super.
What is the minimum I have to draw?
Minimums are age-based: 4% under 65, 5% for 65-74, rising to 14% at 95+. You can always draw more than the minimum.
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