To set up an account-based pension in Australia, you need to have reached preservation age (currently 60) and met a condition of release such as retiring from the workforce. You then transfer some or all of your superannuation into a pension account through your super fund, choose an investment option, set your payment amount and frequency (subject to government minimum withdrawal rates), and start receiving regular, tax-free income if you are aged 60 or over.
An account-based pension is one of the most popular ways Australians convert their super into retirement income. It gives you control over how much you draw, keeps your remaining balance invested, and provides tax-free payments after age 60. This guide walks you through every step of the process including the rules, limits, and planning considerations most people miss.
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
How Does an Account-Based Pension Affect the Age Pension?
This is one of the most important and most overlooked aspects of setting up an account-based pension.
Once you reach Age Pension age (67), your account-based pension balance is assessed under both the income test and the assets test by Services Australia.
Assets test: Your entire account-based pension balance counts as an assessable asset. For a single homeowner, the full Age Pension is available with assessable assets up to $321,500, and a partial pension is available up to approximately $695,500 (2026 thresholds).
Income test: Centrelink uses deeming rates to calculate your assessed income from financial assets, including your pension account balance. The current deeming rates are 1.25% on the first $64,200 (singles) or $106,200 (couples), and 3.25% on amounts above those thresholds. This deemed income counts towards the income test regardless of how much you actually draw from your pension.
What this means in practice: The amount you transfer into a pension account, and how quickly you draw it down, directly affects when and how much Age Pension you may receive. Drawing down your pension account faster in the years between 60 and 67 can reduce your assessable assets by the time you reach pension age potentially increasing your Age Pension entitlement.
This is one of the key areas where professional financial advice adds real value. The decision about how much to transfer, how fast to draw down, and how to structure your income across super and the Age Pension can mean the difference between receiving a full pension, a partial pension, or no pension at all.
Pension vs Lump Sum vs Annuity
How Does an Account-Based Pension Compare to Other Options?
| Feature | Account-Based Pension | Lump Sum Withdrawal | Annuity |
|---|---|---|---|
| How income works | Regular payments from your super balance | One-off or multiple cash withdrawals | Fixed guaranteed income for a set period or life |
| Flexibility | High choose your amount and frequency | Very high take what you want, when you want | Low locked into a fixed payment schedule |
| Tax (after 60) | Tax-free payments and investment earnings | Tax-free withdrawals | Tax-free (from taxed funds) |
| Investment risk | You bear the risk balance goes up and down | No ongoing risk money is in cash | No risk income is guaranteed by the provider |
| Can it run out? | Yes if you withdraw too much or markets fall | Yes once withdrawn, it’s spent | No (lifetime annuity) or Yes (fixed-term annuity) |
| Age Pension impact | Balance counts in assets and income tests | Withdrawn money counts if held in assessable form | Assessed under income test; asset-test-exempt for some products |
| Best for | Most retirees who want flexibility and tax efficiency | Large one-off expenses (debt, renovations) | Retirees who want guaranteed, worry-free income |
Most Australians use a combination an account-based pension for flexible income, with occasional lump sum withdrawals for specific needs.
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.
In our experience advising 500+ Australian families, the “how much to transfer” question is where most people benefit from professional advice. Transferring too much into a pension account can push you over the transfer balance cap or reduce your Age Pension eligibility. Transferring too little can mean paying unnecessary tax on investment earnings in your accumulation account. The right amount depends on your total super balance, your expected Age Pension entitlement, your spending needs, and your tax position and getting it right at the start is much easier than fixing it later.
Step 3: Understanding the Transfer Balance Cap
There is a government-imposed limit on how much super you can transfer into a tax-free pension account. This is called the transfer balance cap, and as of 2026 it is $1.9 million per person.
If your super balance exceeds $1.9 million, you can only transfer that amount into a pension account. The excess must remain in your accumulation account, where investment earnings are taxed at 15% (rather than the 0% tax rate that applies inside a pension account).
For most Australians, the $1.9 million cap is well above their super balance and will not apply. But for couples who have accumulated significant super, or those who receive a death benefit pension from a spouse, the cap becomes an important planning consideration.
The ATO tracks your transfer balance through a Transfer Balance Account. If you exceed the cap, you will receive an excess transfer balance determination and may face additional tax.
Step 4: 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 5: 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.
What does this look like in practice? If you transfer $500,000 into an account-based pension at age 65, your minimum annual withdrawal is 5% meaning you must draw at least $25,000 per year ($2,083/month before any rounding). You can draw more if you choose, but withdrawing only the minimum helps your balance last longer. At a 5% withdrawal rate with a balanced investment return of 6–7% per year, a $500,000 balance could potentially last 25+ years though actual outcomes depend on market performance, fees, and inflation.
Here’s what different starting balances look like at the minimum withdrawal rate for a 65-year-old:
| Starting Balance | Minimum Withdrawal (5%) | Monthly Income (Approx) | How Long It May Last* |
|---|---|---|---|
| $200,000 | $10,000/year | ~$833/month | 15–20 years |
| $300,000 | $15,000/year | ~$1,250/month | 18–23 years |
| $500,000 | $25,000/year | ~$2,083/month | 22–28 years |
| $630,000 | $31,500/year | ~$2,625/month | 25–30 years |
| $800,000 | $40,000/year | ~$3,333/month | 28–35 years |
Estimates assume a balanced investment return of 6–7% p.a. after fees and drawing at minimum withdrawal rates only. Actual outcomes depend on market performance, fees, inflation, and individual spending patterns. Use the Moneysmart retirement planner for personalised projections.
Step 6: 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?
There’s no minimum balance required, but most people start with at least $100,000–$150,000 to generate meaningful income.
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.
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.
Your payments will stop once your balance reaches zero. However, you may become eligible for the Age Pension, which can supplement your income.
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 transfer balance cap limits how much super you can transfer into a tax-free pension account. As of 2026, the cap is $1.9 million per person. If your super exceeds this amount, the excess must remain in your accumulation account where investment earnings are taxed at 15%. The ATO tracks your transfer balance automatically.
Your account-based pension balance is assessed under both the assets test and the income test when you reach Age Pension age (67). The balance counts as an assessable asset, and Centrelink uses deeming rates to calculate your assessed income regardless of how much you actually withdraw. How quickly you draw down your pension between 60 and 67 can directly affect your Age Pension entitlement.
If you’re wondering whether your super balance is enough to generate meaningful pension income, our guide on what the average super balance looks like at 60 shows you where most Australians stand and how the Age Pension supplements your income if your balance is below the ASFA comfortable benchmark.
And if you’re not sure whether to take a pension, a lump sum, or a combination, understanding the difference between super and the pension system is a useful starting point. Our article on whether superannuation is the same as pension explains the three types of “pension” in Australia and how they work together.
Take Control of Your Retirement Plan
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.