Retirement explained

What's an account-based pension?

An account-based pension is a popular way for Australians to manage their retirement savings.

Investing your super in a pension rather than taking it as a lump sum can make your retirement savings go further.

A pension is a special investment ‘structure’ with tax advantages created by the government to help people manage their super savings in retirement. By investing your super and any other retirement savings in a pension, you can access your money as a regular income in a tax-effective environment.
 

Help your retirement funds go further

You can invest in the same assets, such as cash, shares or property, inside or outside a pension. The difference is that the government provides tax savings on investments inside a pension as an incentive to convert your super into a regular income stream to support you in retirement, rather than take it as a lump sum.

The lower tax rates mean the same investment in a pension will go further than if invested outside a pension.
 

Tax savings on investments inside a pension

All investment earnings in a pension are tax-free

This means you could be better off than:

  • keeping your money in super, where investment earnings are taxed at 15%, or
  • taking your super as a lump sum and putting it in the bank, where you’ll pay personal income tax on any investment earnings.

Tax free income and withdrawals if you’re over age 60

  • If you’re age 60 or older - your pension payments and any lump sum withdrawals are tax free.
  • If you’re between preservation age and age 59 - a portion of your pension payment is taxed, but you may be eligible for a 15% tax offset, reducing the amount you have to pay.
account based pension

Assumptions: Investor is age 60 and invests $450,000 for retirement, drawing an income of $40,000 in the first year that increases by 3% pa. Retirement funds earn 8% pa in both the pension and outside of the pension.


Keeping control over your money

Unlike super, where you must keep your money invested until you retire, when you invest in a pension you get the tax benefits and you’re free to withdraw at least $2,000 whenever you want, including cashing in your entire pension at any time.

The age pension

Despite our increased reliance on super to fund our retirement, many Australian retirees continue to supplement their retirement income with at least a part government age pension.

Even if you only qualify for a part pension, this can make a difference to your retirement lifestyle, as you’ll automatically qualify for a pension concession card and associated discounts.

 

How much super can you save and still get the age pension?

See our Super Savings and Government Age Pension fact sheet for more information about the aged pension.