Compare pension funds that give you an annual income in retirement

What is a pension fund?

A pension fund, or account-based pension, lets you turn your superannuation into a regular income stream once you've reached retirement age. You allocate a portion of your super into a pension fund and then choose to receive a regular payment from the fund.

The income stream can be annual, monthly, fortnightly - whatever works for you.

An account-based pension fund is a tax-effective way to set up a regular income for your retirement, while keeping the bulk of your super invested.

What are the benefits of a pension fund?

Create a fixed but flexible income stream

Helps you create - and stick to - a fixed income in retirement. Many retirees prefer this to pulling out a lump sum, spending it over time and then dipping back into their remaining super.

Transition from work to retirement seamlessly

You can set up payments to come in just as your salary was paid while you were working.

Keep your money invested

If you withdraw all your super as a lump sum then it's no longer invested with your fund. This is fine if you've got other plans for the money.

But if you have an account-based pension fund the money is still invested. You're benefiting from investment returns for longer.

Tax advantages

If you're 60 or older, you don't pay tax on account-based pension payments. And you don't pay tax on any investment earnings once you reach retirement age either.

How to compare pension funds

When comparing pension funds look at:

1. Fees. The lower the fees the more money you have invested.
2. Performance. Like super funds, the past performance of a pension fund over 5 or 10 years is a useful way of comparing funds. But it does not guarantee future returns will be as high.
3. Investment options. Look at what investment options are on offer, such as balance, high growth, conservative. A lot depends on your risk levels, and the older you are the less risk you can typically afford.
4. Accessibility. A good pension fund offers online access via a website or app, giving you more control over your finances.

How to set up a pension fund

1. Compare pension funds. See our tips above.
2. Transfer a lump sum from your super fund into the pension fund account. You can choose the amount that you want to transfer.
3. Select your payment frequency. You need to get at least an annual payment, but you can choose monthly or quarterly payments too. There is a minimum amount you have to withdraw annually, known as a pension drawdown requirement. This minimum increases as you get older.
4. Select your investment option. Like your super fund, the money you place in an account-based pension fund is invested. Depending on the fund you choose, you'll have different investment options like balanced, high growth and so on.

💡 Before doing any of the above, it's worth talking to a financial advisor and an accountant to make sure you're setting everything up in a way that's tax effective and aligns with your goals.

How much of your super can you access via a pension fund?

You can access (or "drawdown") as much of your super as you like once you've hit preservation age. But there are minimum amounts you can withdraw from the age of 64. Your minimum drawdown amounts increase as you get older.

Minimum drawdown rates

The ATO notes that the following information is indicative only. Figures are for the 2023-24 financial year.

More pension fund questions

• What is the best pension fund in Australia?

  There's no one best pension fund for every Australian. You have to compare pension funds for yourself and look at factors like risk level, past performance, fees charged by the fund and options for access (online, app etc).

• Will an account-based pension fund affect my Age Pension eligibility?

  Having an income stream via a pension fund can affect your eligibility for the Age Pension. This is because your pension fund's income stream is part of the income and assets test.

• How long can my pension fund last?

  Your pension fund payments can last until the money runs out. There's no set duration.

• What happens to my pension fund when I die?

  The money left in your pension fund will be inherited by any beneficiaries you nominate.

Written by

Richard Whitten

Money Editor

Richard Whitten is Finder’s Money Editor, with over seven years of experience in home loans, property and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Graduate Certificate in Communications from Deakin University. See full bio

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