Account-based pensions

With an account based pension, there is no fixed term. It keeps going until all your capital has been paid out to you (or your dependants when you die) as regular income or in lump sums. You can choose: what type of assets to invest in; the amount of income you receive (provided you take at least the prescribed minimum); and when you receive it.

Ann's story - an account based pension for flexibility and investment choice

Term	Income	Capital	Investment choice	Tax & social security	Beneficiaries

At age 58, Ann decides to retire. She rolls over her superannuation benefit of $480,000 into an account based pension. The term of the pension will depend on how much she draws as income, and what investment earnings she receives. Ann is not guaranteed an income for the rest of her life.

Ann agrees to set her regular income stream at $4,000 per month, which meets the minimum income limit she needs to draw. She can choose to vary this amount the following year, so long as she stays above the minimum.

In the first year, Ann's investment returns 10% ($48,000). This covers her income of $4,000 per month without touching the capital.

When the investment returns are less than the income Ann is drawing, her capital will start to reduce. Account based pensions are designed to reduce your capital over your lifetime. So, the rate at which Ann's capital will reduce depends on:

the level of income she decides to take each year;
her investment returns, and
the amount of lump sum withdrawals she takes (Ann can access her capital should she need to).

Ann chooses an account based pension because it is one of the most flexible when it comes to investment choice and she can tailor the investment to meet her needs. She can choose from a wide range of different asset classes, which have different levels of risk and returns.

When Ann rolls her super into an account based pension:

her investment earnings remain exempt from tax whilst in the fund
her payments will be tax-free after age 60.

Note: An account based pension does not lower Ann's assets for the purposes of qualifying for the government Age Pension.

Ann's money could be exhausted before she dies. However, if Ann dies while there is still capital remaining, her remaining benefits are paid out to her dependants or estate (as an income stream or as a lump sum).

Seek the advice of a financial planner to plan for what happens when you die.

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