An account-based pension is an income stream from a superannuation fund. A minimum level of income must be drawn each year depending on age. However, if started after 20 September 2007, the maximum drawdown is only limited by the balance of the account.
Advantages of an account-based pension:
- Investment earnings in the account-based pension are tax-free.
- If you are over age 60, the pension payments you receive are not taxable. If you are under age 60, the pension payments are taxed concessionally.
- You can typically elect to receive your pension payments monthly, quarterly, half-yearly, or yearly depending on the fund.
- Lump sum withdrawals (commutations) can also be made from an account-based pension.
Limitations of an account-based pension:
- You can only transfer up to $1.7 million from superannuation (accumulation) into an account-based pension. This is referred to as the transfer balance cap. The cap is indexed to inflation from 1 July 2017 and rounded down to the nearest $100,000.
- From 1 July 2021, the transfer balance cap increased to $1.7 million from $1.6 million, however if you already utilised the full $1.6 million transfer balance cap before the cap increased you are unable to make use of the additional $100,000 cap space.
- Your account-based pension may not form part of your estate and therefore may not be covered by your will. A binding death benefit nomination is a written direction to the trustee of your fund. It allows you to nominate a beneficiary (or beneficiaries) to receive your superannuation benefits in the event of your death.
- You can only commence an account-based pension if the superannuation funds are unrestricted non-preserved.
- There is no guarantee that the Account-Based Pension will last your lifetime or a specific term. The longevity of the account-based pension will be subject to the earnings of the underlying investments and the amount you withdraw.