Features of all account-based pensions
The main characteristics of an account-based pension are:
No fixed term
The pension finishes when your account runs out - i.e. once you've taken out all the money.
Minimum annual pension payment
You have to take at least a certain amount out of your pension account each financial year. The amount is a percentage of your pension account balance at the start of the financial year. The percentage goes up as you get older.
| Age reached on last birthday |
Percentage of pension account balance* |
| Under 65 |
4% |
| 65-74 |
5% |
| 75-79 |
6% |
| 80-84 |
7% |
| 85-89 |
9% |
| 90-94 |
11% |
| 95+ |
14% |
*Sometimes there are special reductions to these percentages. For example, they were halved during 2020/21, 2021/22 and 2022/23 as a special concession during the peak of the Covid-19 pandemic.
Often people with large super balances only start a pension with some of their super. Their super then gets divided into two “accounts” behind the scenes in their SMSF – one is their pension and one is called an “accumulation account” (ie money that is still accumulating in the fund). The minimum payment amounts are based on your pension account only – not all of your super.
Adjustments are made if you start the pension during the year
For example, if you start a pension in January, only around half of the full year’s payment has to be made and the calculation will be done based on your balance in January (i.e. when you start the pension), not the previous 1 July. In fact, if your pension starts as late as June, you do not need to make a payment in that first financial year at all.
Can be stopped at any time
This is known as commuting, and return your benefit to a super accumulation account. You might do this if you no longer want to take so much income, for example, if you return to work. If you decide to do this, you have to pay your pension up-to-date first, for example, if you’re stopping your pension on 1 October, you would have to take roughly one quarter of the year’s minimum payments first.
Payments are tax free after age 60
All payments from account based pensions are tax free for anyone who is over 60 (and remember these pensions can’t usually start until you’re 60 anyway).
Can still make contributions
Starting a pension doesn’t prevent you from continuing to make contributions to the fund – these are just recorded separately in a new member account. You can’t simply add them to the pension once it is running.
Can allocate pension payments to continue to someone else when you die
You can set your pension to continue to someone else (such as a spouse) when you die. This is known as a ‘reversionary’ pension. Note that most people can only nominate their spouse as a reversionary beneficiary.
