I’m 65, Still Working and Earning $120,000 pa – Should I Start an Account Based Pension?
Reaching 65 while still working is no longer unusual. Many Australians continue working by choice, wealth accumulation, or enjoyment of their role.
At a recent annual review, a long‑standing client, John, advised that whilst he knew he could start an account-based pension, he believed he was better off staying in the accumulation phase as he didn’t want to receive a pension payment and pay tax on it. He also advised that he didn’t need the account-based pension payment and felt that getting it paid to him would reduce his retirement wealth.
He was 65, still working, earning $120,000, and approaching retirement in a few years.
Advisers often hear a common question at this stage:
“If I’m still earning a good income, does starting an account-based pension actually make sense?”
In many cases, starting an account-based pension can provide significant benefits, however it is important to seek professional advice to ensure it is effective for you.
Let’s look at John’s concern around tax and the benefits of starting an account-based pension now.
What Changes at Age 65?
Turning 65 is significant because:
- You gain full access to your super, even if you continue working
- You can start an account-based pension (ABP). This can be done by transferring some or all your superannuation balance from the accumulation phase to the pension phase. Note: Amounts transferred to retirement phase pensions are subject to the Transfer Balance Cap, currently $2,100,000 (From 1 July 2025).
- Investment earnings inside an account-based pension are generally tax free
- Pension payments paid to you from an account-based pension are generally tax free (after age 60)
This creates planning opportunities but also risks if executed poorly.
The Key Benefit: Tax Free Earnings Inside an ABP
Let’s look at John’s position to review the pros and cons on an account-based pension.
- Super balance: $700,000
- Investment return: 7% (assumption based on his asset allocation)
- Annual earnings: $49,000
If the money stays in accumulation:
- Earnings taxed at up to a maximum of 15%
- Assuming all earnings are taxed at 15%, the maximum tax payable would be approximately: $7,350 per year
- Net earnings: $41,650
If the money is moved into an account-based pension:
- Earnings tax: $0
- Net earnings: $49,000
Potential annual tax saving: $7,350
Over the three years to retirement at age 68, that’s potentially over $22,000 in tax saved before considering any other strategies.
The Catch, and John’s concern: Minimum Pension Payments and tax
Once you start an ABP, the government requires a minimum annual pension payment.
At ages 65–74, this is currently 5%.
In this example:
- Minimum pension payment: $35,000 per year
- Pension income paid to you is generally tax free after age 60
This is where advice played a critical role which we can see in John’s situation. What helped John was outlining to him that whilst he does get a minimum pension payment, it can form part of a concurrent strategy that also benefits him. This reduces the risk of spending money that is not required for your living expenses.
The Risk: Spending Pension Payments You Don’t Need
If you’re earning $120,000 per year, the $35,000 pension payment may not be required for living expenses, as was the case with John.
Without a plan:
- Pension income flows to your bank account
- Money gets gradually spent
- Retirement capital erodes faster than intended
The pension improves tax outcomes but only if the income is managed deliberately.
Using Pension Income to Fund Concessional Contributions (CCs)
One common strategy is to draw the pension annually and contribute the money back into super using concessional contributions, including unused carry forward cap space.
Here’s how it looked for John:
- Salary: $120,000
- Employer Super Guarantee (12% – financial year 2026/2027): $14,400
- Standard concessional cap (2026/2027): $32,500
- Available concessional cap space this year: $18,100 (The available contribution capacity will vary depending on salary, employer contributions and any other concessional contributions made during the year).
- Plus unused carry forward CCs from prior years (assumed nil available in this example)
- For many Australians, available carry-forward concessional contribution amounts can create significantly larger contribution opportunities.
Strategy
- Take the annual pension payment of $35,000
- Use $18,100 of that cash flow as a personal concessional contribution
- Claim $18,100 as a tax deduction
- Contribution taxed at 15% inside super
Tax Outcome
- Personal marginal tax rate (incl. Medicare): 32%
- Tax saved personally:
$18,100 × 32% = $5,792 - Contributions tax in super:
$18,100 × 15% = $2,715
Net tax saving = $3,077
In the event you have run out of concessional contribution cap space non-concessional contributions can also be considered, with the current annual cap $130,000 for the 2026/2027 financial year.
Bringing Both Tax Savings Together
Here’s where the strategy really becomes powerful.
Annual Tax Savings Summary
| Strategy | Approx. Annual Tax Saving |
| ABP earnings tax exemption | $7,350 |
| CC recycling strategy (net) | $3,077 |
| Total estimated potential annual tax saving | ~$10,427 |
Over the three years to retirement at 68, this equates to over $30,000 in potential improved outcomes, excluding compounding effects.
Why the underlying Investments Matte More Than Ever
At this stage, super is no longer just about growth, it’s about how long the money lasts once you are retirement.
As John was getting closer to retirement it was important to review his total wealth position and strategy including:
- Reviewing asset allocation and investments
- Creating a pooling of assets strategy, where:
- Cash and defensive assets fund short-term pension payments and other short-term needs such as caravans, boats, and or additional travel in the early years of retirement
- Growth assets are allowed to compound over longer periods
- This reduces the risk of selling growth assets when markets may be at temporary lows.
- Aligning investment risk with the retirement timeline (now only three years away)
- Reviewing longer term financial modelling and projections to consider how long John’s assets are expected to last in retirement with his preferred lifestyle and other spending.
Planning for Retirement at Age 68
With retirement expected at 68:
- The next three years are transition years
- Decisions now impact income, longevity, and confidence for decades
A proper plan will:
- Model income needs before and after retirement
- Test longevity of assets under different scenarios
- Adjust investment strategy over time
- Integrate super, pension, personal assets, and Age Pension considerations
This is not just about chasing tax savings it’s about setting up your wealth to sustain your lifestyle income for life.
Final Thought
Starting an account-based pension at 65 while still working can significantly:
- Reduce tax
- Improve income flexibility
- Strengthen retirement outcomes
However, without advice or a proper plan, the minimum pension payment alone can quietly undo much of the benefit if it is not used to continue building your wealth.
John was happy with the plan we proposed and recognised the value of coordinating pension income, tax deductible superannuation contributions, investments and retirement planning and modelling into one strategy.
For many Australians still working after age 65, the question is often not whether they can start an account-based pension, but whether they can afford not to consider one.
If you’d like to know more, please reach out and we would be happy to discuss whether this strategy may be appropriate for your circumstances.
General Advice Warning: The information in this article and the links has been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this article, consult a professional financial advisor to consider whether it is suitable and appropriate for you and your personal needs and circumstances. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, together with the Target Market Determination (TMD).
