Account-Based Pensions Background

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If you’re considering an account-based pension as part of your retirement plans, check out our most recent Outstanding Value Award winners for Account-Based Pension below.

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What is an account-based pension?

An account-based pension, also known as an allocated pension, is a regular, tax-effective income stream you can buy using your superannuation when you retire and reach your preservation age.

You must withdraw money from this account each year and the minimum amount is based on your age and super account balance. Income payments can be made monthly or less frequently.

The Australian Government’s Moneysmart website says you don’t pay tax on pension payments from age 60. If you’re aged 55 to 59, the taxable part of your pension is taxed at your marginal tax rate, less a 15% tax offset.

Similar to your super fund account, an account-based pension is a form of investment account. Your investment earnings from an account-based pension are tax-free on a balance up to the transfer balance cap (currently $1.7 million).

It’s important to note that an account-based pension bought with your superannuation is not the same thing as the Age Pension provided by the government to eligible low income earning retirees. If you have an account-based pension, this may affect your eligibility to receive the Age Pension.

Once you retire and reach your preservation age, you can choose to convert all or part of your superannuation into an account-based pension, or withdraw your whole superannuation balance as a lump sum.

What to look for in an account-based pension?

There are many pension fund options available, so there are a number of things you should look out for when considering an account-based pension. They include factors such as:

  • low fees
  • a wide range of investment options
  • competitive long-term performance (although past performance is no guarantee of future performance)
  • multiple options for income payments
  • transition-to-retirement (TTR) options if you’re still working
  • online access to your pension account so you can make changes easily
  • features including general education seminars or tools, free financial advice, consolidation when setting up the account, etc.

Your super fund may be able to advise you on what options to look for in any account-based pension as part of its requirements under the Retirement Income Covenant to help you better prepare for funding your retirement years.

How does Canstar’s Account-Based pensions Star Ratings and Outstanding Value Awards work?

Canstar’s Account-Based Pensions Star Ratings and Outstanding Value Award use a unique ratings methodology that studies the annual investment returns, fees and features of account-based pensions on its database.

An account-based pension product must meet certain selection criteria in order to be considered for a Canstar Star Rating, and that includes to:

  • be open to the public and not restricted exclusively to members of a specific organisation (i.e. corporate funds and funds closed to new members are ineligible)
  • be directly available to consumers without the need for an intermediary (such as a financial planner)
  • not be a wrap-only investment option
  • not be an annuity or TAP (Term Allocated Pension Fund)
  • have been available for a minimum of seven years
  • belong to a product with funds under management (FUM) of at least $100m (superannuation and pension assets combined).

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This content was reviewed by Senior Finance Journalist Alasdair Duncan as part of our fact-checking process.

Important information

For those that love the detail

This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.

Canstar does not rate or compare every provider in the market and we may not compare all features relevant to you. View Canstar's Account Based Pensions Methodology Report. Star Ratings are only one factor to take into account when considering products. Check current product details and investment options with the product issuer.

Any advice on this page is general and has not taken into account your objectives, financial situation or needs. Consider whether this general financial advice is right for your personal circumstances. You may need financial advice from a qualified adviser. Canstar is not providing a recommendation for your individual circumstances. It’s important you check product information directly with the provider. Consider the Product Disclosure Statement and Target Market Determination (TMD), before making a purchase decision. Contact the product issuer directly for a copy of the TMD. For more information, read our Detailed Disclosure.

What is a Target Market Determination?

A Target Market Determination (‘TMD’) is a document that explains which people particular financial products may be suitable for (the target market) and sets out any conditions around how financial products can be distributed to consumers.

Why do product issuers provide Target Market Determinations?

From 5 October 2021, TMDs are compulsory for most financial products.

Issuers and distributors of financial products must take reasonable steps that are likely to result in financial products reaching consumers in the target market defined by the product issuer.

We recommend that you consider the TMD before making a purchase decision. Contact the product issuer directly for a copy of the TMD.

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