For most of your working life the arrangement with your super was simple, and almost invisible. Money went in. A slice of every pay packet disappeared before you ever saw it, a statement turned up once a year, you glanced at the balance and filed it away.
Then you stop working, and the whole thing has to run in reverse. The money has to start coming out — regularly, reliably, in an amount you can actually live on. And it turns out nobody ever explained that part. You have a balance. What you need is an income. The thing that turns one into the other is called an account-based pension, and it is worth understanding well before the day you need one.
What an account-based pension actually is
It is not a new product you go out and buy from a stranger. In most cases it is your existing super, moved from the accumulation account that has been collecting your contributions into a retirement account held by the same fund.
Once the money is in that account, three things change. You decide how much income to draw and how often — monthly, quarterly, half-yearly or annually. The balance stays invested in options you choose, so it keeps earning while you spend it. And you can still take lump sums on top of your regular payments if the car dies or the roof needs doing.
What it is not is a guaranteed income for life. The payments continue until the account is empty, and then they stop. That is the single most important sentence in this article, and we will come back to it.
To start one, you need to have met what the rules call a condition of release. For anyone born from 1 July 1964 — which is everyone now approaching retirement — preservation age is 60. There is also a ceiling on how much you can move into the retirement phase: the general transfer balance cap is $2.1 million in 2026–27. Most people will never go near it, but it is there.
The minimum you have to take out each year
The government allows your money to sit in this account earning tax-free returns on one condition: that you actually draw on it. So there is a legislated minimum you must withdraw each financial year, and it rises as you get older.
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 or over | 14% |
The percentage applies to your account balance at 1 July, using your age on that date, and the answer is rounded to the nearest $10. So a 66-year-old who starts the financial year with $500,000 must draw at least $25,000 — a bit over $2,000 a month. A 62-year-old with $400,000 must draw at least $16,000.
Two details catch people out. If you start the pension part-way through a year, the minimum is pro-rated for the days left in that year — and if you start it on or after 1 June, there is no minimum at all for that year. And there is no maximum. You can take as much as you like, whenever you like. That is both the freedom of these accounts and their central risk.
Why the tax office loses interest once you turn 60
Here is the part that genuinely surprises people. From age 60, the payments you draw from an account-based pension funded by an ordinary taxed super fund are tax-free. Not lightly taxed. Tax-free.
The earnings inside the account are tax-free as well. In your accumulation account, investment earnings were taxed at up to 15 per cent each year. Once the money is supporting a pension, that stops. It is one of the few genuinely generous corners of the Australian tax system, and it is the reason the Australian Taxation Office insists you draw the minimum rather than leaving the money parked there indefinitely.
Two caveats. Between 55 and 59 the taxable portion is taxed at your marginal rate with a 15 per cent offset, so the picture is different if you start early. And some older public sector and untaxed schemes are treated differently — if your super came from one of those, check with your fund rather than assuming.
How Centrelink sees it
An account-based pension counts in both age pension tests, which is where a lot of retirement plans come unstuck.
Under the assets test, the account balance is simply an asset. Under the income test, it is treated as a financial asset and deemed — Services Australia assumes it earns a set rate of return regardless of what it actually earned, and counts that assumed figure as your income.
Under the standard income test rules, a single person can have income up to $218 a fortnight before the age pension starts to reduce, and it falls by 50 cents for every dollar above that, cutting out entirely at $2,619.80 a fortnight. For a couple living together, the combined free area is $380, each pension reduces by 25 cents in the dollar, and payments cut out at $4,000.80 combined.
The useful thing to understand is that deeming is based on your balance, not on what you withdraw. Drawing more than the minimum does not increase your deemed income this fortnight. But it does run the balance down over time, which gradually reduces the assets counted against you — so for many part-pensioners, the age pension quietly rises as their super falls. Your income in retirement is usually these two things working together, not one or the other.
If you are behind, or worried it will run out
The minimum drawdown is a legal floor, not a retirement plan. Four or five per cent of your balance may be far less than you need to live on, or more than is wise to spend in a bad year. Treat it as the starting point of a conversation, not the answer.
Three things are worth watching. First, the early years matter most: a sharp market fall while you are drawing income does more lasting damage than the same fall ten years later, which is why many retirees keep a year or two of planned withdrawals in a cash or conservative option so they are never forced to sell growth assets at the bottom. Second, longevity — a couple retiring at 65 today should plan for one of them reaching their nineties, so a plan that works for fifteen years is not good enough. Third, review the drawdown rate each year rather than setting it once and forgetting it.
And if the balance is smaller than you would like, the picture is rarely as bleak as it feels. A modest super balance combined with the age pension produces a far better outcome than most people expect, and working part-time for even two or three extra years does three things at once: it adds contributions, it shortens the period your savings must cover, and it leaves the balance invested for longer. Noel Whittaker has made the point for decades that the people who do best in retirement are not the ones with the biggest balances, but the ones who understood the rules early enough to use them.
If you want the whole picture in one place — how much you will need, how to structure the drawdown, how the age pension tests interact with your super, and the decisions to make in the years before you stop working — Retirement Made Simple (6th Edition) by Noel Whittaker covers it in plain English. It is $19.95, updated for the current financial year, available in PDF and EPUB, and you can buy direct from the author.
This article is general information only and doesn't take account of your personal circumstances. Figures are current at time of writing and change each financial year. Consider seeking advice before acting.