Account-based pensions are a popular way for Australians to draw a tax-effective income from their superannuation savings in retirement. But with 2025 policy updates, market volatility, and evolving retirement goals, understanding how to use these pensions wisely is more important than ever. Here’s what you need to know to make the most of your super in the new era of retirement planning.
How Account-Based Pensions Work in 2025
Once you reach your preservation age and retire (or meet another condition of release), you can convert your superannuation into an account-based pension. This lets you draw a regular income stream while your remaining balance stays invested and continues to grow (or fluctuate) in line with investment returns.
- Flexible income: Choose how much you withdraw each year (above a government-set minimum).
- Tax benefits: Earnings on investments in the pension phase are tax-free, and for most people over 60, withdrawals are tax-free as well.
- Investment choice: Continue to select from a range of investment options to suit your risk profile.
In 2025, account-based pensions remain the most common income stream for retirees, but careful management is needed to ensure your money lasts as long as you do.
2025 Policy Updates: Minimum Drawdown Rates and Other Changes
The government’s COVID-19 era halving of minimum pension drawdown rates has ended. As of 1 July 2024, the standard minimums are back in force, based on your age at 1 July each year:
- 55–64 years: 4% of your account balance
- 65–74 years: 5%
- 75–79 years: 6%
- 80–84 years: 7%
- 85–89 years: 9%
- 90–94 years: 11%
- 95+ years: 14%
Other 2025 updates include:
- Transfer Balance Cap: The maximum you can transfer into the pension phase remains indexed, now at $1.96 million.
- Superannuation Guarantee: The rate for employer contributions has increased to 12%, potentially boosting future retirees’ balances.
- Centrelink impacts: Your account-based pension counts towards the Age Pension income and assets tests. Recent changes to deeming rates and thresholds may affect your eligibility or payment.
Strategies to Maximise Your Retirement Income
With market volatility and inflation in 2025, retirees face new challenges in making their super last. Here are key strategies to consider:
- Stick to (or just above) the minimum: Withdrawing only what you need can help your savings last longer and keep more in the tax-free pension environment.
- Review your investment mix: Don’t set and forget. Ensure your pension account’s asset allocation still matches your risk tolerance and income needs as you age.
- Plan for longevity: Australians are living longer. Consider how your withdrawal rate, spending, and investment choices will support you for 25-30+ years in retirement.
- Coordinate with Centrelink: Small adjustments in your withdrawals or rebalancing may improve your Age Pension entitlement.
- Consider a blended approach: Some retirees mix account-based pensions with annuities or other income streams for extra certainty.
For example, Joan, aged 67, has $600,000 in her super. She starts an account-based pension and withdraws the minimum 5% ($30,000 p.a.). By investing in a balanced option and reviewing her spending each year, she gives her savings the best chance to grow and last through retirement, while also keeping her Age Pension eligibility in sight.
Common Pitfalls and How to Avoid Them
Even seasoned retirees can slip up. Watch out for:
- Withdrawing too much, too soon: Large lump sums early on can erode your future income potential.
- Ignoring market risk: Overexposure to shares or not enough diversification can hurt in downturns, especially if you’re drawing from a falling balance.
- Not updating your strategy: Life changes, policy tweaks, and market shifts all mean your approach should evolve over time.
Looking Ahead: The Future of Retirement Income
With the government considering further reforms to improve retirement income stability and advice, staying engaged with your account-based pension is crucial. Flexible, tax-effective, and now more important than ever for funding a comfortable retirement, these pensions reward proactive planning and regular review.
