How do you set up an account-based pension? If you’re getting close to retirement, one of the smartest ways to turn your superannuation savings into regular income is through an account-based pension.
But what exactly is it and how do you set up an account-based pension in Australia?
In this guide, we’ll walk you through everything you need to know, including how it works, who’s eligible, and the steps to get started confidently.
What Is an Account-Based Pension?
An account-based pension (also known as a superannuation income stream) is a way of using your super to provide yourself with regular, flexible income in retirement.
Here’s how it works:
- You transfer some or all of your super into a pension account.
- You receive regular payments (monthly, quarterly, or annually) to replace your work income.
- The remaining balance stays invested, allowing your money to continue growing.
It’s one of the most popular ways Australians fund their retirement because it offers control, flexibility, and tax-free income after age 60.
Why Set Up an Account-Based Pension?
Before learning how to set one up, it helps to understand why it’s worth considering:
- Tax-Free Income: If you’re 60 or older, your pension payments and investment earnings are tax-free.
- Flexibility: You decide how much and how often to withdraw (within government limits).
- Continued Growth: Your balance remains invested, helping your money last longer.
- Ease of Access: You can withdraw lump sums if you need extra funds for big expenses.
It’s designed to give you a steady, tax-efficient income while keeping your retirement savings working for you
Who Can Set Up an Account-Based Pension?
You can set up an account-based pension if you’ve:
- Reached your preservation age (currently 60 for anyone born after 1 July 1964), and
- Retired from the workforce, or
- Met another condition of release (for example, reaching age 65).
You can also start one as part of a Transition to Retirement (TTR) strategy while still working, but there are slightly different rules for that.
Step-by-Step: How Do I Set Up an Account-Based Pension?
Setting up an account-based pension is simple once you meet the eligibility requirements.
Here’s how to do it in five clear steps:
Step 1: Check Your Eligibility
Before you can start, confirm that you’ve reached your preservation age and met a condition of release.
For most people, that means being at least 60 years old and officially retired.
If you’re not yet retired, you might still qualify under the Transition to Retirement (TTR) rules allowing you to access limited super income while working part-time.
Step 2: Decide How Much Super to Transfer
You don’t have to move all your super into a pension account you can transfer just part of it.The rest can stay in your accumulation account, where it continues to receive employer contributions (if you’re still working).
However, once money is moved into a pension account, you can’t add new contributions to it.
That’s why it’s important to plan carefully before deciding how much to transfer.
Tip: Many retirees keep a small amount (like $10K–$20K) in their accumulation account for flexibility and contribution options later.
Step 3: Choose an Investment Option
Your account-based pension balance stays invested, so you’ll need to choose how it’s allocated typically between:
- Conservative (lower risk, lower returns)
- Balanced (mix of growth and stability)
- Growth (higher risk, higher returns)
The right choice depends on your risk tolerance, income needs, and how long you expect to draw from your super.
If unsure, your super fund or a licensed financial adviser can help you choose the best investment mix.
Step 4: Decide Your Payment Amount and Frequency
Next, you’ll choose how much income you want to receive and how often.
The government sets minimum withdrawal limits based on your age. For example:
| Age | Minimum Annual Withdrawal (% of Account Balance) |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95+ | 14% |
There’s no maximum limit you can withdraw more if needed, but doing so may reduce how long your savings last.
Step 5: Apply Through Your Super Fund
Once you’ve made these decisions, contact your super fund to set up the pension.
You’ll need to:
- Complete a pension application form (available from your super fund).
- Nominate your payment amount and frequency.
- Provide proof of identity (e.g., driver’s licence or passport).
- Choose your beneficiary (who receives your super when you die).
Most funds will handle the setup within a few weeks and start your first payment shortly after approval.
How Do I Set Up an Account-Based Pension That Lasts?
The key to success isn’t just setting up your pension it’s managing it wisely.
Here’s how to help your income last throughout retirement:
- Review Annually: Check how your investments and withdrawals are performing.
- Reinvest Earnings: Let your balance grow through compounding returns.
- Adjust Withdrawals: Spend less during market downturns to preserve capital.
- Seek Professional Advice: A financial adviser can help you model how long your balance may last and adjust as needed.
FAQs: How Do I Set Up an Account-Based Pension?
1. How much super do I need to start an account-based pension?
There’s no minimum balance required, but most people start with at least $100,000–$150,000 to generate meaningful income.
2. Is income from an account-based pension tax-free?
Yes, if you’re aged 60 or older and your fund is a taxed super fund. Both pension payments and investment earnings are generally tax-free.
3. Can I add more money to my pension later?
No. Once your account-based pension is set up, you can’t add new contributions. You’d need to start a separate pension account if you make more contributions.
4. What happens if I run out of money in my pension?
Your payments will stop once your balance reaches zero. However, you may become eligible for the Age Pension, which can supplement your income.
5. What’s the difference between a TTR pension and an account-based pension?
A Transition to Retirement (TTR) pension is for people still working and under 65. An account-based pension is for those who’ve fully retired or reached 65, offering more flexibility and tax benefits.
The Bottom Line
So, how do you set up an account-based pension?
It’s a straightforward process but one that deserves careful planning.
Once you reach preservation age and retire, you can turn your super into a flexible, tax-free income stream that supports your lifestyle and keeps your money working for you.
At Wealthlab, we help Australians set up account-based pensions strategically choosing the right transfer amount, investments, and income level to make your super last.
Book a free consultation today to find out how to start your pension and retire with confidence.
Learn More About Retirement & Superannuation
https://moneysmart.gov.au/retirement-income-sources/account-based-pensions