Lump sum or pension?

Choosing whether to take your super as a lump sum or pension depends on your situation.

Lump sum or pension?

It’s the question that many pre-retirees and retirees discuss constantly. But there’s no definitive answer. Choosing whether to take your super savings as a lump sum or pension depends on your individual situation.

However, for retirees looking for the security of an income for a set period of time, with the opportunity for growth but the security of knowing your income won’t be impacted by poor investment market performance, an account-based pension with a protected income benefit can be a good choice.

Benefits of an account-based pension with protected income benefit

  • Peace of mind: regular, reliable income stream that won’t decrease over the term. A Protected Income Lifetime pension is payable for the remainder of your life, no matter how long you live, no matter what the investment market performance. You also have access to part or all of your account balance at any time.
  • Tax effective: earnings in account- based pensions are not subject to tax. You will not have to pay tax on your income from a pension after age 60. If you are aged 55-59, the taxable portion of your annuity will be taxed at your marginal tax rate, but some or all of this payable will receive a 15 per cent offset.
  • Eliminate longevity risk: protect your income over the long term. Most Australians can expect to live a long time in retirement. Given current improvements in mortality, the average life expectancy for men aged 65 is now 87 years and for women aged 65 it is 90 years.With a possible three decades in retirement, it can be hard to forecast whether or not your lump sum will last.
  • Opportunity for growth: participate in market upside. An account-based pension with protected income payment allows you to choose a range of investment options so you can participate in market upside. A guaranteed pension means the provider is responsible for managing the money throughout your retirement. They select and manage the investments and dealing with the risk of negative investment earnings.
  • Reversionary benefit: take care of your loved ones. There is an option for your Protected Income to continue to be paid to your spouse in the event of your death.

Drawbacks of account-based pensions with protected income benefit

  • Additional costs: protected income benefits are an additional cost to your account-based pension. These costs vary based on term and the underlying investments you choose.
  • If you do not opt for a ‘reversionary’ income stream, when you die, your spouse will have access to the account balance.


Benefits of a lump sum

  • Ability to repay debt: taking a lump sum may allow you to repay debts (such as your mortgage) and start your retirement debt-free.
  • Money for capital expenditures: lump sums can be used to undertake home renovations, purchase a new car or take a long-delayed overseas holiday.
  • Dual options: taking a lump sum to pay for major expenditures means the remainder can be left invested in your super fund to grow, or be converted into an income stream.


Drawbacks of a lump sum

  • Your decision is final – once money is removed from the super system it may not be possible to re-contribute.
  • Superannuation and account-based pensions are concessionally taxed, and you may pay more tax on your investment if outside this system.

Useful links:

Help Save Retirement

Find an MLC adviser near you

Seek the financial advice that's right for you

Protect your super with MLC Investment Protection


Important information and disclaimer


1 Australian Life Tables 2005-07 cited in Institute of Actuaries, Submission to Financial System Inquiry 2014,

This article is intended to provide general information only and has been prepared by MLC Limited ABN 90 000 000 402 (AFSL number 230694) without taking into account any particular person's objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.

Any advice in this communication is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this communication we recommend that you consider whether it is appropriate for your personal circumstances.  Any tax estimates are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

MLC MasterKey Investment Protection

We may need to change the protection features even after you've started your investment protection. MLC MasterKey Investment Protection is a feature of MLC MasterKey Super & Pension Fundamentals and is issued by MLC Nominees Pty Limited ABN 93 002 814 959 AFSL 230702 RSE L0002998, as trustee of The Universal Super Scheme (ABN 44 928 361 101). You should obtain a Product Disclosure Statement at or by phoning 133 652 before making a decision to invest in this product.



    To make a comment, please register or login
    26th Apr 2015
    Hi folks, be very careful. We were talked into a Pension rather than my preferred small investment property in a tourist town. We were using a little Super to top up for our Pension. Under the "guidance" of two different "Financial Advisors"(unrelated), along came the GFC. Despite our pleading to initiate quickly our funds into cash, they, each in their turn, reassured us to keep waiting for the turn around and "first kick up". We lost our entire Super and savings which were spread across a low and medium portfolio. Never before had we not handled our own money. That was our mistake, lack of confidence in our own ability which until then had really served us well. Never too old to learn. We are well and happy so consider ourselves rich. Just posted this to encourage others to trust yourself.
    26th Apr 2015
    Hi Magpie
    Sorry to hear of your bad fortune.... and the very bad advice that you received. Investment risks should be in the accumulation phase, before retirement, so the peaks and troughs even out before you need the money. When retirement approaches or after it has come, funds should be invested conservatively - lower rate, higher safety.
    In hindsight, you shouldn't have been pleading with the advisors, but ordering them to follow your wishes. Too late for you, but a good lesson for the rest of us.
    If you had taken a lump sump, investment in a tourist property would have given you a useful income stream to supplement your pension.
    I do get concerned about the advice in this article about taking a super lump sum for "a long delayed overseas holiday" etc. The whole intent of super is to support us in retirement - sadly something that didn't work out for you for other reasons. People that take a lump sum to cash out, rather than turn into an income stream, divert aged pension funds from those that are truly needy. I am in a situation where I could cash out super for a lovely lump sum to take the holidays, buy the car, make gifts to the kids etc... but I won't. I'll be using it for an income stream - the reason why super avoids most tax in the first place.
    Again, condolences to you in your situation.
    Jilly B
    26th Apr 2015
    Magpie, I understand your circumstances perfectly. I had to sell my beautiful home in a separation agreement and I had a lump sum that I wanted to put down as a major deposit on a new apartment. My financial adviser told me stories or people who bought houses etc and could not afford the rates and other expenses so I invested it in 2006 in a medium risk managed fund which reverted to Macquarie. I contributed an extra large amount out of my salary to top up super whilst I was working and the GFC hit and my deposit plus all the money I had contributed marked time. In 2010 I bought an apartment and I had not made a dime in that time on the investment but all the fees were taken out. I went to work overseas as work in my profession was grim and I had concentrated ever since on getting my apartment paid off. I should be comfortable and retired by now but I am still working full time in a county far from home. I am lucky that I am very healthy
    and in 3 years time I will have my apartment paid for. I will never trust an adviser again and I will use my own initiative and skills and take the blame if I falter.

    27th Apr 2015
    Go with MLC and watch your money disappear this mob are crooks.
    16th May 2020
    There are more different searching application,but this edge is batter then more other app remember password this edge are store the your entire any user name and password stored.

    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles