Allocated Pension

An allocated pension is an account-based pension wearing an older name. The term predates the 2007 Simpler Super reforms, when the products were structured differently: the balance was divided into income units and payments were bounded between a low or nil minimum and an actuarial maximum set by a life-expectancy factor. The name survives on legacy statements, trustee reports and some product labels, and it still means the same thing today.

Under the modern rules, the product is an account-based pension: minimum drawdowns of 4 percent under 65 rising through age bands to 15 percent at 95, payments tax-free at 60 or over, earnings tax-free in the retirement phase, and the general transfer balance cap of $2 million applying from July 2025. The maximum payment is yours to choose, except under a transition to retirement pension where 10 percent is the ceiling. Commutations back to accumulation are allowed.

The old product ran on actuarial factors. The balance was divided into income units, the maximum payment was the balance divided by a life-expectancy factor - roughly 6 percent at 65 - and the minimum was low or nil. The maximum moved each year with the factor, and the product commuted like the modern version. The 2007 Simpler Super reforms replaced the factors with a floor: the minimum drawdown ladder.

The modern product is the account-based pension mechanics. The minimum is recalculated on 1 July each year on the current balance: 4 percent under 65, 5 percent from 65, 6 from 75, 7 from 80, 11 from 85, 14 from 90 and 15 from 95. On a $600,000 balance at 65 the minimum is 5 percent - $30,000 a year - and anything above it is your choice. The payments are tax-free at 60 or over, and the earnings inside the pension are tax-free.

The name survives in the wild. Statements from funds that merged, legacy product disclosure documents and trustee reports still carry the allocated pension label, and the modern rules apply to all of them. The transfer balance cap counts the pension from the day it starts, and a legacy pension started before 2007 counts against the cap at its 1 July 2017 value. The label is history; the rules are current.

For an Australian reader, the legacy name is a paperwork problem, not a product problem: the same drawdown ladder, the same tax-free payments at 60 and the same $2m cap apply whether the statement says allocated pension or account-based pension. MoneySmart's account-based pension pages are the authority, and the ATO's minimum drawdown tables carry the age bands. The term still appears on pre-2007 products still running and on funds that merged, so the mapping matters at claim time and at drawdown reviews. The account-based pension entry covers the modern mechanics in full.

A colleague named Brent (yes, that Brent) found allocated pension on his mother's statement from a merged fund, assumed it was a different product with different rules, and paid an adviser $600 to confirm it was an account-based pension with the standard drawdown ladder. The $600 bought him the glossary entry you are reading. The highest-leverage thing most Australians can do is map the legacy label to the modern rules before paying anyone, starting with the minimum pension drawdown calculator.