In short

An account-based pension (ABP) started on or after 1 January 2015 is assessed at its full balance under the Age Pension assets test and deemed for income — Centrelink uses prescribed deeming rates on the balance, not your actual drawdowns. Every $100,000 in ABP balance reduces the Age Pension by approximately $300 per fortnight under the assets test taper.

The account-based pension is now the dominant form of retirement income product in Australia. Most Australians who retire with superannuation savings convert their balance into an account-based pension at or around retirement, drawing down income while the remaining balance stays invested. For anyone in this position who also receives, or expects to receive, an Age Pension from Centrelink, the treatment of that account-based pension balance under the means tests is one of the most important numbers in retirement planning — and it is frequently misunderstood.

The short version is this: the full balance of an account-based pension is counted as an assessable asset under the assets test, and is also subject to deeming under the income test. Neither the actual payments you draw nor the investment returns your fund earns are directly relevant to the income test calculation — only the balance and the deeming rates matter. Understanding why this is the case, and working through the arithmetic, produces a clearer picture of where your retirement income actually sits.

How does the assets test treat an account-based pension?

For account-based pensions commenced on or after 1 January 2015 — which covers the great majority of ABPs currently in payment — the current balance is counted in full as an assessable asset under the Age Pension assets test (FirstTech/Colonial First State, Strategy Matrix 2025-26). There is no partial exemption, no carve-out for pension phase, and no distinction made between investment returns already earned and original contributions. The balance on any given date is assessed at that value.

The assets test thresholds applicable from 1 July 2026 for a single homeowner are $333,000 for a full pension and $733,500 as the cut-off point where entitlement falls to zero. For a couple (homeowner), the combined thresholds are $499,000 and $1,102,500 respectively (Services Australia, assets-test-for-age-pension, retrieved 24 July 2026). Between the full pension threshold and the cut-off, the pension reduces at $3 per fortnight for every $1,000 in excess assets. A single homeowner with $600,000 in assessable assets — say a $550,000 account-based pension and $50,000 in other savings — has assets exceeding the $333,000 threshold by $267,000. The reduction is $267,000 ÷ 1,000 × $3 = $801.00 per fortnight, leaving a residual pension of $1,200.90 − $801.00 = $399.90 per fortnight against a maximum single rate of $1,200.90 (DSS Guide 5.1.8.10, current to 20 September 2026).

For most retirees with substantial superannuation savings, the account-based pension balance will be the single largest assessable asset. This is what makes it so significant: a $100,000 swing in the ABP balance translates directly to a $300 per fortnight swing in Age Pension entitlement.

How does the income test treat an account-based pension?

For the income test, account-based pension balances held by income support recipients are subject to deeming — the same rules that apply to bank accounts, term deposits, shares, and managed funds. This change took effect on 1 January 2015 (DSS Guide 4.4.1.10, v1.338). Deeming assumes that a financial asset earns income at a prescribed rate, regardless of what it actually earns. The current deeming rates, effective 1 July 2026, are 1.25 per cent per annum on financial assets up to $66,800 for a single pensioner (or $110,600 for a pensioner couple), and 3.25 per cent on the amount above those thresholds (DSS Guide 4.4.1.10).

The practical result is that a single pensioner holding a $500,000 account-based pension alongside $50,000 in other financial assets has $550,000 in total financial assets subject to deeming. The first $66,800 is deemed to earn $835.00 per year, and the remaining $483,200 is deemed to earn $15,704.00 per year — total annual deemed income of $16,539, or approximately $636 per fortnight. Against the income free area of $226 per fortnight for a single Age Pension recipient (Services Australia, income-test-for-age-pension, retrieved 24 July 2026), the excess is $410 per fortnight. At the 50-cents-per-dollar taper, the income test reduction is $205 per fortnight, leaving a pension of $995.90 per fortnight after the income test.

Comparing the two tests for this example: the assets test produces $399.90 per fortnight, the income test produces $995.90. The lower figure applies — so the assets test is the binding constraint, and the actual Age Pension payable is $399.90 per fortnight, or approximately $10,400 per year. This pattern — assets test binding for ABP-heavy retirees — is common for those with balances above around $400,000 to $500,000.

A point that surprises many retirees: the amount you actually draw from your account-based pension does not directly affect your income test position. Whether you draw $25,000 per year or $50,000 per year from a $500,000 balance, the deemed income figure is the same. Drawing more reduces the balance over time, which eventually reduces assessed assets and deemed income — but the draw itself is not income for Centrelink purposes. This is by design: drawdowns represent withdrawal of your own capital, not new earnings, and the deeming framework captures the investment return component separately.

What about grandfathered pre-2015 account-based pensions?

The change to deeming in January 2015 did not apply retrospectively to all existing ABPs. Account-based pensions held by income support recipients immediately before 1 January 2015 may be grandfathered and continue to be assessed under the return-of-capital rules that applied before that date — where Centrelink assessed income based on the pension payment less a deduction for the return of the member's own capital (DSS Guide 4.4.1.10). For ABP holders who have been receiving an Age Pension continuously since before 2015 and have not rolled over or restructured their pension since, this grandfathering may still apply and can produce a meaningfully lower assessable income figure than deeming. Grandfathered status is lost if the person's entitlement to an income support payment ceases, so a retiree who leaves the Age Pension temporarily — perhaps because their assets increased — and later re-applies will lose the grandfathering.

How do minimum drawdowns affect the Age Pension means tests?

Super law requires account-based pensioners to draw at least a minimum amount each year, calculated as a percentage of the account balance. For 2026-27, the minimum drawdown rates are 4% for members under 65, 5% for ages 65 to 74, 6% for ages 75 to 79, 7% for ages 80 to 84, 9% for ages 85 to 89, 11% for ages 90 to 94, and 14% for ages 95 and over (ATO, Key superannuation rates and thresholds — payments from super, ato.gov.au, current as at 24 July 2026). The temporary 50% reduction that applied during 2019-20 through 2022-23 has not been extended; normal rates have applied since 1 July 2023. The minimum drawdown requirement is a tax and super law obligation — it exists to ensure that superannuation savings flow through to consumption rather than accumulating indefinitely in a tax-preferred environment. For Centrelink purposes, the minimum drawdown has no direct income test effect, since income is assessed via deeming on the balance, not the actual payment. The indirect effect is that higher mandatory drawdowns reduce the balance more quickly, which over time reduces both the assessed asset value and the deemed income. For retirees in their mid-70s and beyond where minimum drawdown percentages are higher, this dynamic is worth tracking.

How are reversionary account-based pensions treated for couples?

For couples, a common structure is a reversionary account-based pension: on the death of the member, the pension continues automatically to the surviving spouse rather than being paid as a death benefit lump sum. From a Centrelink perspective, the survivor's account-based pension continues, and the income stream balance is counted in the survivor's means test at its value on the date of death. An important timing provision applies: where a reversionary account-based pension is received, the balance is not added to the survivor's Transfer Balance Account — the lifetime limit on retirement-phase super — until 12 months after the date of death. This 12-month window gives the survivor time to make decisions about retaining the pension or commuting part of it if their own Transfer Balance Account would otherwise be exceeded (FirstTech/Colonial First State, Super Death Benefits Guide 2025-26). The estate planning implications are meaningful for couples with two substantial balances.

What does this mean in practice?

For any retiree currently receiving an Age Pension with an account-based pension in payment, the practical question is whether they know — with reasonable precision — how their balance today translates into Centrelink entitlement. Most people have a general sense that more super means less Age Pension, but the relationship is more arithmetic than that. Every $100,000 in ABP balance changes the assets test reduction by $300 per fortnight. Every $10,000 in additional deemed assets above the threshold changes the income test position by about $6.25 per fortnight (at the 3.25% deeming rate: $325 a year, divided by 26, multiplied by the 0.50 taper).

The decision that catches people out most often is a large contribution to the ABP — perhaps from an inheritance, from selling an investment property, or from exercising a bring-forward contribution before retirement. Adding $100,000 to an ABP that is already above the assets test full pension threshold will, immediately, reduce Age Pension entitlement by $300 per fortnight. Whether that trade-off is worthwhile depends on after-tax returns inside superannuation relative to the lost pension — and that is a calculation worth running with specific numbers rather than assumptions.

Sources

Key takeaways

  • An account-based pension commenced on or after 1 January 2015 is counted at its full balance under the Age Pension assets test — no partial exemption applies.
  • For the income test, the ABP balance is deemed to earn income at 1.25% up to $66,800 for singles and 3.25% above that — actual drawdown amounts are irrelevant.
  • Every $100,000 in ABP balance changes the assets test reduction by $300 per fortnight; whether the assets or income test binds depends on the balance size.
  • Pre-2015 account-based pensions may be grandfathered under the old return-of-capital rules — but grandfathering is permanently lost if pension entitlement ceases.
  • Minimum drawdown requirements (4%–14% by age) have no direct income test effect, but reduce the balance over time, gradually lowering both assessable assets and deemed income.

Frequently asked questions

Is my account-based pension balance counted for the Age Pension assets test?

Yes. An account-based pension commenced on or after 1 January 2015 is assessed at its full current balance under the Age Pension assets test — no exemption, no carve-out for pension phase, and no distinction between contributions and earnings. For homeowners, a full Age Pension applies up to $333,000 in total assessable assets (as at 1 July 2026), with entitlement tapering to zero at $733,500 for a single and $1,102,500 for a couple. A $100,000 change in ABP balance changes the assets test pension reduction by $300 per fortnight.

How does Centrelink calculate income from my account-based pension?

Centrelink deems the ABP balance to earn income at prescribed rates — 1.25% per annum on the first $66,800 of total financial assets for singles (or $110,600 for couples) and 3.25% on amounts above those thresholds, effective 1 July 2026. Your actual drawdowns do not count as income for Centrelink purposes. Whether you draw $25,000 or $50,000 from a $500,000 balance, the deemed income figure is the same — it is only when the balance itself reduces over time that deemed income falls.

What is the grandfathered treatment of pre-2015 account-based pensions?

Account-based pensions held by income support recipients immediately before 1 January 2015 may be grandfathered and assessed under the older return-of-capital method, which typically produces a lower assessable income figure than deeming. Grandfathered status is lost permanently if the recipient's income support entitlement ceases — a retiree who temporarily leaves the Age Pension and later re-applies will be subject to deeming on return. If you have held an ABP continuously since before 2015, confirm with Services Australia whether grandfathering still applies to your situation.

Do minimum drawdowns from my account-based pension affect my Age Pension?

Minimum drawdowns have no direct income test effect — Centrelink assesses income via deeming on the balance, not on actual payments received. The indirect effect is that higher mandatory drawdowns (4% to 14% by age under 2026-27 rules) deplete the balance more quickly, gradually reducing both the assessable asset value and the deemed income. For retirees in their late 70s and beyond with rising minimum drawdown percentages, this trajectory is worth tracking as it affects both means test positions over time.

How does a reversionary account-based pension affect the surviving spouse's Age Pension?

When a reversionary ABP passes to a surviving spouse, the balance is counted in the survivor's means test at its value at the date of death. A 12-month Transfer Balance Account grace period applies — the pension balance does not count toward the survivor's Transfer Balance Cap until 12 months after the date of death, giving time to assess whether a partial commutation is needed. The estate planning implications are significant for couples where both partners hold substantial ABP balances.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.