An account-based pension is a regular income stream which offers tax effective and flexible income stream payments using your superannuation funds.

Clients spend their working lives accumulating Superannuation, and when they have reached “preservation age “(between age 55 and 60) then they can convert their superannuation lump sum into an account-based pension, which will pay an income stream for living expenses during retirement. It’s not a guaranteed income for life and is invested similarly to superannuation and will be subject to market volatility.

With an account-based pension, you can choose how much you want to receive from the pension (within minimum and maximum allowed), and also how you want your funds to be invested. The minimum payment depends on your age and ranges from 2% at age 55 and progressively rises to 7% when a client is aged over 95 years old.

With an account-based pension there is a risk that the funds will run out because it depends how much super you have, the earnings of the fund, how much income you are taking, and also the fees associated with managing the pension funds’ assets. Payments from an account-based pension can be made at regular intervals but must be more than the minimum payments allowable by the Government.

Depending on how much money you have in your account-based pension you may also be able to get a full or part age pension from the government, but this depends on how much income you receive and how much other assets you have.

An account-based pension offers clients a tax effective income stream, because clients over age 60 pay no tax on income payments. Clients aged 55-60 pay tax on the taxable portion of income stream payments at marginal tax rate. Lump sum payments can be withdrawn also if clients need lump sums for holidays or household purchases. Earnings on pension funds are tax free, but there is no guarantee that the funds will last as long as you live as they are subject to market volatility and also it depends how much income you are receiving and how much you withdraw in lump sums.

If you require help with understanding what’s best for you, the team at Superannuation Advice Australia can help.  Contact us today!

Leave a comment