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What is an account-based pension?
An account-based pension, or allocated pension, is a regular, tax-effective income stream that you can purchase using your superannuation, after you reach preservation age.
You must withdraw money from this account each year, and the minimum you must withdraw per year is calculated based on your account balance and age. Income payments can be made monthly or less frequently.
Similarly to your super fund, 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 $1.6 million, with a 15% tax on transition to retirement pensions from 1 July 2017 onwards.
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.
Canstar’s Account-Based Pensions Star Ratings use a unique ratings methodology that compares both cost and features across account-based pension products.
There are many pension funds in the market. What you should look for in an account-based pension includes factors including:
- Low fees
- A wide range of investment options
- Competitive long-term 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.
An account-based pension product must meet the following selection criteria in order to be considered for rating:
- Minimum funds under management for provider (or parent) of $100 million (superannuation and pensions combined).
- Retail or Industry open public offer (i.e. corporate and closed products are excluded).
- Directly available to individuals without intermediary such as a financial planner.
- Not a wrap-only product.
- Not an annuity.
- Not a TAP (Term Allocated Pension). These can only be commenced with the proceeds of another TAP or complying pension/income stream originally started prior to 20 September 2007.
- Must offer an investment option that meets the specified eligibility criteria for comparison purposes, which is typically the default option that has a growth asset allocation of 60-80%.
Use the selector tool at the top of this page to compare account-based pensions using our star ratings.
Please note that these are a general explanation of the meaning of terms used in relation to account-based pensions, superannuation funds, and related investment activities.
Policy wording may use different terms and you should read the terms and conditions of the relevant policy to understand the inclusions and exclusions of that policy. You cannot rely on these terms to the part of any account-based pension product you may purchase.
Refer to the product disclosure statement (PDS) and Canstar’s Financial Services Guide (FSCG) for more information.
Annuity: A pre-determined income stream purchased for a lump sum amount usually from a life insurance company. This is not the same as an account-based pension.
Benchmark: Usually represents the minimum performance objective for an investment portfolio.
Beneficiary: The person who will receive the rest of your account-based pension if you die.
Death benefit payment: If your beneficiary is your spouse or dependant, they can choose to receive the death benefit payment from your superannuation as a pension income stream or as a lump sum. Non-dependent beneficiaries can only receive super death benefits as a lump sum.
Deductible amount: The tax-free portion of an account-based pension. Also called the tax-free amount.
Dependant: Someone who is financially dependent upon you for tax purposes, such as a spouse, a de facto spouse, an ex-spouse, or a child under the age of 18 years old. For superannuation and account-based pension purposes, a child can remain a dependant up until the age set by your super fund or as long as they are financially dependent on you.
Dividend: The amount a company pays out to its shareholders from its after-tax earnings. For individual shareholders, the payout is in proportion to the number of shares held. When company profits are down, the company may decide to pay a reduced dividend, or no dividend at all.
MER: The Management Expense Ratio (MER) is the proportion of your investments you must pay your investment manager. This fee is usually tiered by balance level. Also called an investment fee.
Minimum drawdown rate: Also known simply as the minimum withdrawal rate, this is the minimum amount of money you must withdraw from your account-based pension each year. The amount is calculated based on your age and remaining pension balance.
PDS: Product disclosure statement.
Pension payment: Depending on the context, this can refer either to the income stream paid to a retiree by their account-based pension, or to the fortnightly Age Pensions paid to eligible retirees by the Australian government.
Performance fee: How much you have to pay your investment manager for exceeding benchmarked performance.
Preservation age: The minimum age at which people who have permanently retired from the workforce can access their superannuation benefits and purchase an account-based pension.
Reversionary beneficiary: If you have a reversionary beneficiary, when you die, that person will receive your account-based pension withdrawals until age 25, when they will receive the remaining balance as a lump sum.
Rollover: To transfer an eligible termination payment (ETP) to an account-based pension or to another superannuation fund or rollover fund.
Transition to retirement: An income stream that you can use before you are 65 years old, in order to transition into retirement by working fewer hours and supplementing your salary with income from your super.
Withdrawal fee: A fee that a fund may charge when you make a full or partial withdrawal.
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Author: Nina Tovey
As Canstar’s Editor-in-Chief, Nina heads up a team of talented journalists committed to helping empower consumers to take greater control of their finances. Previously Nina founded her own agency where she provided content and communications support to clients around Australia for eight years. She also spent four years as the PR Manager for American Express Australia, and has worked at a Brisbane communications agency where she supported dozens of clients, including Sunsuper and Suncorp.
Nina has ghostwritten dozens of opinion pieces for publications including The Australian and has been interviewed on finance topics by the Herald Sun and the Sydney Morning Herald. When she’s not dreaming up ways to put a fresh spin on finance, she’s taking her own advice by trying to pay her house off as quickly as possible and raising two money-savvy kids.
Nina has a Bachelor of Journalism and a Bachelor of Arts with a double major in English Literature from the University of Queensland. She’s also an experienced presenter, and has hosted numerous events and YouTube series.