Account-based pensions — the retirement phase of super

Accumulation vs pension phase

Your super sits in one of two phases:

• Accumulation: earnings taxed at 15%. The default for everyone still working.
• Pension (retirement phase): earnings are tax-free. You must draw a minimum amount each year.

Minimum drawdown rates (default, non-pandemic)

Calculated as a percentage of the 1 July balance each year. If you want, you can draw more — there’s no maximum in an account-based pension.

The $1.9M transfer balance cap

Each person has a lifetime cap on how much super can move into pension phase. From 1 July 2025 the general transfer balance cap is $1.9M. This is indexed in $100,000 increments when CPI triggers it. Any super above the cap must stay in accumulation phase where earnings are still taxed at 15%.

Exceed the cap and the ATO applies an excess transfer balance tax (15% for the first breach, 30% for subsequent). This is one of the few super mistakes that actually triggers a penalty tax.

Taxation

• Earnings inside the pension: 0% (tax-free to the fund)
• Drawdowns, age 60+: tax-free
• Drawdowns, preservation age to 59: taxable component taxed at marginal rates with a 15% offset

Starting a pension

1. Reach preservation age AND meet a condition of release (see our preservation age guide)
2. Notify your fund you want to commence an account-based pension
3. Choose investment options, drawdown amount (at least the minimum), and payment frequency
4. Provide your TFN and nominate beneficiaries (see binding nominations)
5. Your fund sends annual PAYG payment summary details to the ATO and you

Interaction with the Age Pension

Money in an account-based pension counts toward both Centrelink tests. It’s an assessable asset at market value, and it’s subject to deeming for the income test (not the actual pension payments — the deemed amount). See our Age Pension guide for how these interact.