Understanding the difference between these two phases is critical to managing tax, income and long-term sustainability.
What Is Accumulation Phase?
Accumulation phase is the stage where you are building your super balance. Contributions go in, investment earnings accumulate, and earnings are taxed at up to 15%.
This phase typically covers your working years.
During accumulation, you are focused on growth, contribution strategies, and building your retirement nest egg.
What Is an Account-Based Pension?
An account-based pension is a retirement income stream established once you meet a condition of release, such as retiring after preservation age or reaching age 65.
Once you move funds into an ABP:
- Investment earnings become tax-free (subject to your personal Transfer Balance Cap).
- You must withdraw a minimum percentage each year (starting at 4% under age 65, increasing with age).
- There is no maximum withdrawal limit.
This structure turns your super from a growth vehicle into an income source.
Why the Difference Matters
The tax difference between accumulation and pension phase can be significant. Earnings that would otherwise be taxed at 15% become tax-free in retirement phase.
However, pension phase comes with mandatory minimum withdrawals. Even if you do not need the income, you must withdraw the minimum each year. This can have tax implications if funds are reinvested outside super.
Investment Strategy Changes in Retirement
Investment strategy should evolve when moving into pension phase.
In accumulation phase, volatility is generally more tolerable because contributions are ongoing and retirement may be decades away.
In pension phase, withdrawals combined with market downturns can permanently reduce capital. This often leads to a more balanced allocation between defensive and growth assets.
The objective shifts from maximising growth to sustaining income while managing volatility and inflation risk.
Choosing the Right Structure
For some retirees, it may make sense to keep part of their super in accumulation phase and move only part into pension phase, particularly if balances exceed the Transfer Balance Cap.
The decision is not simply “retire = pension.” It involves tax modelling, income needs analysis, estate planning alignment and long-term projections.
Understanding the mechanics of accumulation versus pension phase allows retirees to make more informed decisions and avoid unintended tax consequences.
Disclaimer: This information is general in nature and does not consider your personal objectives, financial situation or needs. You should consider seeking professional advice before making any financial decisions. Past performance is not a reliable indicator of future performance.
