3 types of pension for retirement income

Combining two sources of income

You may decide to combine an account-based pension from your super fund, with the government Age Pension from Centrelink (if you’re eligible).

Depending on your situation, this can be an effective way to meet your income requirements.

Account-based pension

This type of pension enables you to withdraw a regular income stream from the money you’ve accumulated in super.

Before you can set one up, you’ll need to meet a condition of release such as retirement – or be opting for a Transition To Retirement (TTR) pension.

With an account-based pension, your income stream is drawn from your super savings – so how long it lasts will depend on several factors. These include your starting balance, the performance of your investments, and the amount you draw as pension payments.

Payments are flexible, so you can choose an amount that suits your income needs. However, a minimum annual payment applies – depending on your age and account balance.

Another advantage of an account-based pension is that it can be tax-effective. Once you’ve met a condition of release (such as retirement) – investment earnings within the account-based pension are tax-free. You also don’t pay tax on pension payments you receive, once you’re aged 60 or over.

The government Age Pension

This is a regular fortnightly payment that you may receive from the government. If you’re eligible, it helps you meet your retirement income needs.

To be eligible for the Age Pension, you’ll need to: 

• have reached the ‘Age Pension age’
• meet the Australian residency requirements
• have assets and income below the allowable limits 

Your date of birth determines when you can receive the age pension. Please visit this page for current eligibility age requirements.

Will your account-based pension affect your government Age Pension?

How much Age Pension you’re entitled to receive will be determined by the Centrelink assets and income tests.

When you apply for the Age Pension, your Colonial First State allocated pension (account-based pension) will generally be included. 

Example – receiving maximum Age Pension in the Centrelink assets and income tests.

Theresa is a single person and owns her home. She needs $30,000 each year to meet her living expenses in retirement.

Theresa has $200,000 in super, and decides to use the money to set up an account-based pension.

As her income and assets are below the allowable amounts, Theresa is entitled to the maximum annual Age Pension.

She then draws pension payments from her account-based pension which supplement her government Age Pension – ensuring she meets her income needs of $30,000 each year.

Where can I find out more?

A good place to start is the government’s Moneysmart website, and there’s useful information at the Services Australia website.

It’s a good idea to consult a financial adviser about retirement income streams which are right for you.