Once you retire, your super stops being a growing nest egg and becomes the engine of your income. For most Australians, the way you switch it on is an account-based pension — a retirement-phase income stream that pays you regular amounts while the rest of your balance stays invested and, importantly, earns tax-free. It’s the most common way to draw a retirement income in Australia, and getting the settings right is central to making your money last.
This guide covers how account-based pensions work in 2026, the drawdown rules, and the transfer balance cap. It’s a cluster under our retirement planning pillar, and it’s the natural next step after you’ve set a target in how much money you need to retire.
What an account-based pension is
When you reach preservation age — now 60 for everyone — and retire or meet another condition of release, you can move some or all of your super from the accumulation phase into a retirement-phase account-based pension. From there you receive regular payments while your remaining balance stays invested in the options you choose.
The key features:
- Flexible income. You choose how much to draw each year, provided you take at least the government minimum. There’s no maximum.
- Tax-free earnings. Investment earnings in the retirement phase are tax-free (unlike the 15% that applies in accumulation).
- Tax-free payments over 60. For anyone 60 or older, the pension payments themselves are tax-free.
- Investment choice. You keep control of how the account is invested, so you can match your risk to your income needs.
Minimum drawdown rates
The government requires you to withdraw at least a minimum percentage of your account balance each financial year, based on your age at 1 July. The standard rates (the temporary COVID-era halving has ended) are:
| Age at 1 July | Minimum annual drawdown |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95 and over | 14% |
The rates rise with age by design — the system expects you to spend your super over your lifetime, not preserve it indefinitely. There’s no maximum drawdown, but taking more than you need shortens how long the balance lasts and moves money out of the tax-free environment.
The transfer balance cap
There’s a ceiling on how much super you can move into the tax-free retirement phase, called the general transfer balance cap. It’s indexed, and it rises from $2.0 million in 2025-26 to $2.1 million in 2026-27.
Any amount above your personal cap must stay in the accumulation phase — where earnings are taxed at 15% — or be withdrawn as a lump sum. If you’re anywhere near the cap, it’s worth checking your personal transfer balance account with the ATO before starting or adding to a pension, because everyone’s cap can differ depending on when and how they first started a retirement-phase income stream.
Running a pension through an SMSF
You don’t have to use a large fund’s product. If you run a self-managed super fund, you can pay yourself a pension directly from the fund. The same drawdown rates and transfer balance cap apply, but you take on the administration and compliance yourself — the mechanics are covered in detail in our guide to SMSF pension phase. This is the main bridge between the retirement and SMSF sides of the hub.
Strategies to make your super last
Draw close to the minimum
Taking the minimum, or just above it, preserves capital and keeps more of your money earning tax-free. This helps stretch your savings across a retirement that could last 25 years or more.
Hold a cash buffer against sequencing risk
A market fall in the early years of retirement is especially damaging because you’re selling assets to fund income. Keeping a couple of years of spending in cash lets you avoid selling growth assets into a downturn — a “bucket” approach.
Review your investment mix
Your asset allocation should reflect your stage of retirement. Many retirees hold a blend of growth and defensive assets rather than shifting entirely to cash, because a fully conservative portfolio can struggle to keep pace with inflation over a long retirement. See how to invest in shares for the building blocks.
Coordinate with the Age Pension
Account-based pensions count under both the income test (via deeming) and the assets test for the Age Pension. Small changes to your balance can shift your entitlement, so review the interaction each year.
Consider a blended approach
Some retirees pair an account-based pension with an annuity to lock in guaranteed income for essentials while keeping the flexibility and growth potential of the account-based pension for everything else.
Account-based pensions vs other options
It helps to see where an account-based pension sits relative to the alternatives:
| Feature | Account-based pension | Lifetime annuity | Leaving super in accumulation |
|---|---|---|---|
| Income flexibility | High — you set the amount (above the minimum) | Fixed, guaranteed | You withdraw ad hoc |
| Investment control | Yes | No | Yes |
| Earnings tax | Tax-free (retirement phase) | Guaranteed income basis | Taxed at 15% |
| Longevity protection | No — can be outlived | Yes — income for life | No |
| Lump-sum access | Yes | Restricted | Yes |
For most retirees the account-based pension is the workhorse, precisely because of the tax-free earnings and flexibility. Many pair it with an annuity to add a guaranteed income floor, or keep a portion in accumulation if their balance exceeds the transfer balance cap.
What happens to the balance when you die
An account-based pension doesn’t simply vanish when you die — any remaining balance is paid out as a super death benefit. Who receives it, and how it’s taxed, depends on whether you’ve made a valid binding death benefit nomination and whether the beneficiary is a tax dependant. This is an important and often-missed part of retirement planning, and it connects to broader estate planning: a reversionary pension nomination, for example, can let your spouse continue receiving the income stream seamlessly. It’s worth reviewing your nominations when you start a pension, not just when you set up the fund.
Common pitfalls
- Withdrawing too much early. Large early withdrawals can quickly erode the balance and cap future income.
- Being over-conservative. Holding everything in cash risks your income failing to keep up with prices over decades.
- Ignoring the transfer balance cap. Moving too much into pension phase can create excess-transfer-balance tax.
- Set and forget. Rules, markets and your needs change; review at least annually.
Related reading
Fit your pension into the bigger picture via the retirement planning pillar and how much money you need to retire. Compare guaranteed income with annuities, understand access timing in preservation age, and if you self-manage, see SMSF pension phase.
This article is general information only and not financial or tax advice; consider your own circumstances and speak to a licensed adviser or the ATO before acting.