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Allocated Pension: What it is and how does it work

An allocated pension, also known as a Retirement Income account (or sometimes referred to as an account-based pension), is a retirement income stream that lets you draw a regular income from your superannuation.

Once you reach the age of 65 or fully retire (over the age of 60), an allocated pension can give you a flexible income while keeping your remaining super savings invested and growing.

How an allocated pension ​(or Retirement Income account) ​works

How much you want to receive as income is up to you. The only rule is that you must comply with the government’s minimum withdrawal requirements. 

This means withdrawing at least the minimum required amount each year. This is a percentage of your account balance, which varies based on your age. 

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Our Retirement Centre can provide one-on-one support and answer the questions you might be too shy to ask. Our services are available to all.

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What’s the difference between a pension, an account-based pension and an allocated pension?

It’s easy to get confused between a pension, an account-based pension, and an allocated pension. Here’s a quick breakdown. 

Pension

A pension is a general term and often associated with government-provided income streams. In Australia, this is the Centrelink Age Pension. However, the term is also sometimes used to describe the account-based pension and allocated pension products (known as a Retirement Income account at Equip Super) provided by superannuation funds to retired members.

Account-based pension and allocated pension

An account-based pension and an allocated pension refer to the same product —  a financial product that enables a regular income (i.e. pension) to be drawn from your superannuation savings. Both terms are used interchangeably in Australia. As mentioned above, this product is called a Retirement Income account at Equip Super.

 

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Benefits of an allocated pension

As with any financial product, allocated pensions have benefits and drawbacks that should be considered.

Benefits of an allocated pension
  • Flexibility - you have control over the amount of income you receive.
  • Tax benefits - if you are 60 or older, your income from an allocated pension is tax-free. In some cases people under the age of 60 may be able to access an allocated pension, in this situation, income from the pension may be taxed.
  • Investment control - your superannuation remains invested, allowing your balance to grow over time. 
  • Access to lump sums - ​y​ou can withdraw lump sums if necessary, giving you flexibility.
Potential disadvantages
  • Fees - As with your superannuation account, there are administrative and investment fees associated with allocated pensions. 
  • Risk of running out of funds - There's a risk that your funds could run out if you withdraw too much, too early.

Is an allocated pension right for you?

Deciding whether an allocated or account-based pension is suitable for you depends on several factors, such as: 

  • Your financial situation
  • Retirement goals
  • Risk tolerance

An allocated pension (account-based pension) is ideal for those who value flexibility and want control over their retirement income. 

It suits those comfortable managing the risks associated with investment fluctuations and market performance.

The risks

Drawing down too much too soon or experiencing poor investment returns could: 

  • Deplete your balance faster than anticipated.
  • Affect your ability to maintain your chosen lifestyle later in retirement.
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Frequently asked questions

An allocated pension offers income flexibility for retirees because you can choose how much income you want to receive each year — subject to minimum withdrawal limits. Additionally, payments from an allocated pension are generally tax-free. Plus, your superannuation savings stay invested.

 

For retirees over 60, payments from an allocated pension are tax-free. However, if you’re under 60, the pension payments may be subject to tax.

There is no maximum limit on the amount you can withdraw from an allocated pension. You can take out as much as you need, including lump sums (if you are retired).

Your retirement questions answered

A financial planner can take the guesswork out of retirement. Book a time for an initial conversation and we can help you map out your retirement goals, supporting services, and next steps. 

This initial appointment is obligation free and available to all fund members at no additional charge.

Book a time to talk to our advice team or call us on 1800 065 753

Have a general enquiry? Contact our Helpline.

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