Pros & Cons Of Account-Based Pensions

Considering an account-based pension? Canstar takes you through some of the main pros & cons involved.

What is an account-based pension?

An account-based pension (formerly known as an allocated pension) is a regular income stream, purchased with money you have accumulated in super, after you have reached preservation age.

Thanks to the superannuation guarantee (SG) scheme that has been in place for more than two decades now, most workers in Australia have some superannuation when they retire. At that point – and once they have reached their preservation age – workers can either:

  • Withdraw their superannuation as a lump sum to spend or invest elsewhere.
  • Use their superannuation to purchase or “roll” into an account-based pension.
  • Withdraw part of their superannuation as a lump sum and convert the remainder to an account-based pension.

Pros & cons of account-based pensions

As with many financial options, there are always benefits and drawbacks to consider, and a few include:

Pros Cons
  1. You don’t generally pay tax on investment earnings
  1. Your investment earnings are not guaranteed and may fluctuate in line with market performance depending on how your money is invested
2.  You won’t pay tax on pension payments from age 60 2. There is no guarantee your super will last as long as you do
3. If you are aged 55-59, the taxable portion of your account-based pension will be taxed at your marginal tax rate less a 15% tax offset
4. You can access your money at any time i.e. you can withdraw some or all of the money as a lump sum
5. You can vary the income payments (subject to minimum and maximum restrictions)
6. You can choose how your money is invested by the fund manager


Despite the pros outweighing the cons, it’s important to do your research and ensure you read the Product Disclosure Statement (PDS) and terms and conditions before making a purchase decision. Account-based pensions are a good choice if you want regular, flexible, and tax-effective income but they do not guarantee an income for life. Fortunately for you, Canstar compare over 70+ funds to help guide you through this financial decision.


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