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Allocated pensions

Using an allocated pension to create a regular income stream after retiring can allow you to draw income while keeping your funds invested.

What is an allocated pension?

For people seeking a secure income in retirement, an allocated pension may be an appropriate option. Also known as an account-based pension, it’s like receiving a regular wage from your superannuation account when you retire or reach your preservation age, which is between 55 and 60 depending on when you were born.

Your preservation age

Date of birth

Preservation age

Before 1 July 1963

Already reached

1 July 1963 - 30 June 1964


1 July 1964 and onwards


You just have to transfer part or all of your super into a Mercer Super Trust Allocated Pension Division product and then you’ll receive income payments directly into your bank account. One of the big advantages is that your super and pension balances are still invested, so they keep earning investment returns for you.

Each year however you’ll need to draw down a minimum amount of the account balance determined by both your age and balance at 1 July each year.

The table below highlights the drawdown rates.



Drawdown rate

Under 65


65 to 74


75 to 79


80 to 84


85 to 89


90 to 94


95 and over


The difference between allocated pensions and the age pension

It’s important not to confuse an allocated pension with an age pension. They are different types of retirement income.

An allocated pension is managed through your super fund, whereas the age pension is a government benefit paid to eligible Australians to help them in retirement. To receive the age pension, you must be at least 66 years and 6 months old depending on when you were born. Generally, you must have been an Australian resident for at least 10 years in total. 

Income and asset tests apply for the age pension. If your income, combined with the value of assets such as investment properties, are above certain limits, you may not be eligible for it. Likewise, how much you can be paid depends on the value of your assets and if you’re in a relationship.

An allocated pension and an age pension can work in tandem for retirees. For example, when you transfer super into an allocated pension, you can use it to top up any age pension payments you get. It’s important to know, however, that the balance of your allocated pension counts toward the age pension asset test, while any estimated income from the allocated pension is factored into the income test.

The pros and cons of an allocated pension

Allocated pensions are popular, accounting for almost four out of five pensions, according to the Australian Prudential Regulation Authority.

The key advantages of an allocated pension include:

Tax benefits – you are not taxed on investment earnings within your fund, and from the age of 60 you don’t pay tax on pension payments you receive. For those aged 58 and 59, the taxable portion of your allocated pension will be taxed at your marginal tax rate, less a 15% tax offset.

Flexible payments – you can decide how often you want to receive your pension payments – either monthly, quarterly or annually.

Investment growth – the balance of your allocated pension fund continues to be invested and is designed to keep earning interest and, like a super account, you can select your investment options.

Estate planning – if there is money left in your allocated pension when you die, it can be left for your beneficiaries.

Some of the potential disadvantages with an allocated pension include:

Age pension impact – as mentioned, the balance of your allocated pension is an assessable asset, so it may affect your eligibility for the government benefit. Centrelink conducts an assessment of your finances, which determines if you can get the age pension, and how much. Allocated pensions are generally subject to deeming rules for income test purposes, which means they are treated the same way as financial assets such as cash, shares and managed funds. Under these rules, all financial investments are assumed to earn a certain rate of income, regardless of how much income is actually generated.

Longevity risk – as allocated pensions depend on the amount you have saved in your super account, they do not guarantee an income for life. 

Restrictions may apply – if you’re converting your super into an allocated pension, you’re restricted to transferring up to a maximum of $1.9 million. If your super balance is higher than that figure, the excess must be left in the accumulation phase of your super account, where earnings will be taxed at the concessional rate of 15%, or taken out of super completely.

Working out any potential financial and tax scenarios related to allocated pensions and age pensions can be complicated, so we recommend you seek financial advice before setting up an allocated pension fund.

Our Helpline Advice team can provide financial advice about your super fund at no additional cost. You can make an appointment with this team by calling our Helpline on 1800 682 525 between 8am-7pm (AEST/AEDT), Monday-Friday.

Disclaimer: Information current as at  1 July 2023. It has been prepared on behalf of Mercer Superannuation (Australia) Limited (MSAL) ABN 79 004 717 533, Australian Financial Services Licence 235906, the trustee of Mercer Super Trust ABN 19 905 422 981. We recommend you seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of action to take. The value of an investment in the Mercer Super Trust may rise and fall from time to time. Neither MSAL nor Mercer (Australia) Pty Ltd (Mercer) guarantees the investment performance, earnings or return of capital invested in the Mercer Super Trust. Past performance should not be relied upon as an indicator of future performance. ‘MERCER’ and Mercer SmartPath are Australian registered trademarks of Mercer ABN 32 005 315 917. Copyright 2023 Mercer LLC. All rights reserved.