Account-based pension fees and the $2.1 million transfer balance cap explained

An account-based pension pays you a regular income from your super once you have met a condition of release. It has the same kinds of fees as an accumulation account — administration, investment and transaction costs — but the investment earnings in the retirement phase are tax-free, and each year you must draw at least a minimum percentage of the balance that depends on your age. How much you can move into retirement-phase pensions is limited by the transfer balance cap: the general cap is $2.1 million from 1 July 2026, although your personal cap may be lower if you started a pension earlier. Fees matter more in retirement than many people expect, because there are no contributions to offset them and the balance is usually at its largest.

This guide is part of the fund comparison checklist section. Figures are illustrative. General information only, not financial or tax advice.

How an account-based pension works

1. You meet a condition of release, such as retiring after 60; see preservation age and conditions of release.
2. You move some or all of your accumulation balance into a pension account, usually in the same fund.
3. The money stays invested in the options you choose.
4. You choose how often to be paid and how much, at or above the minimum.
5. You can generally take extra lump sums, or switch back to accumulation, subject to the fund's rules.
6. Payments continue until the account runs out; it is not guaranteed for life.

Minimum drawdown rates

Each financial year you must draw at least the following percentage of your balance on 1 July (or a pro-rata amount in the first year):

There is no maximum for an account-based pension in the retirement phase. A transition to retirement pension is different: it has a 10% maximum and its earnings are taxed at 15%.

Fees in a pension account: worked example

Illustrative member, age 66, moves $500,000 into an account-based pension. Fees: $1.50 a week + 0.10% administration, 0.55% investment fees and costs, 0.07% transaction costs.

1. Flat fee: $1.50 × 52 = $78
2. Percentage fees: 0.10% + 0.55% + 0.07% = 0.72% × $500,000 = $3,600
3. Total yearly fees: $3,678, about 0.74%
4. Minimum drawdown at 66: 5% × $500,000 = $25,000

Fees are about 15% of the minimum annual income in this example. If a similar pension product cost 0.30 points less, the saving would be about $1,500 a year at this balance — money the member could spend or leave invested. Use the annual super fee calculator for your own balance, and compare pension products as well as accumulation products. Note that YourSuper's main comparison covers MySuper products, not pension products, so read pension PDSs directly.

The transfer balance cap

The transfer balance cap limits the total amount you can transfer into retirement-phase income streams over your lifetime, where earnings are tax-free.

Key points:

• Your transfer balance account records amounts you move into retirement phase (credits) and certain amounts taken out as commutations (debits). Regular pension payments and investment earnings or losses do not change it.
• If you first started a retirement-phase pension before 1 July 2026, your personal cap is calculated using proportional indexation, so it may be below $2.1 million. myGov shows your personal cap and transfer balance account.
• If you exceed your cap, you must commute the excess back to accumulation (or take it out) and pay excess transfer balance tax on notional earnings.
• Amounts over your cap can stay in super in an accumulation account, where earnings are taxed at up to 15%.
• Your total super balance against the general cap also affects your non-concessional contributions cap; see super thresholds for 2026–27.

Choosing a pension product: what to compare

1. Fees on your balance, including any pension-specific administration fee.
2. Investment options, including whether you can draw payments from a cash or defensive option while leaving growth assets invested.
3. Payment flexibility: frequency, changing amounts, lump sums.
4. Death benefit options: reversionary pension to a spouse, binding nominations; see death benefits and beneficiary nominations.
5. Services: retirement planning help, intra-fund advice.
6. Interaction with the Age Pension: account-based pensions are assessed under the income test using deeming and under the assets test. Check with Services Australia.

Before choosing a pension product, it is also worth reviewing investment option fees and whether any leftover accounts should be combined first; see consolidating super through myGov.

Frequently asked questions

Is income from an account-based pension taxed?

If you are 60 or over and the pension comes from a taxed fund, payments are generally tax-free. Earnings inside a retirement-phase pension are also tax-free.

Can I have more than one pension?

Yes, but each has its own fees, and all retirement-phase pensions count toward the same transfer balance cap. Many people find one simpler and cheaper.

What if markets fall after I start a pension?

Your balance falls and minimum payments next year will be lower, because they are based on the 1 July balance. Your transfer balance account is not reduced by investment losses.

Do I need advice before starting a pension?

It is often worth it, because the choice affects tax, the Age Pension and estate planning. The Financial Information Service at Services Australia is free; licensed advisers charge fees.

Official sources

• ATO — transfer balance cap, transfer balance account, minimum annual payments
• myGov — your personal transfer balance cap
• Moneysmart — account-based pensions and retirement income
• Services Australia — Age Pension income and assets tests, Financial Information Service