An account based pension is a type of investment that can provide you with a convenient, reliable, flexible and tax-effective income when you retire.

The best way to think of it is as your personal retirement income account, operating within a super fund. Once you've set up the account you receive regular income payments. At the same time, the account is earning investment income to top it up so it lasts longer.

You'll continue to receive pension payments as long as there's money left in your account. How long that will be depends on the starting amount, how you choose to invest it, what level of income you draw and whether you take out any lump sum payments along the way.

There's no guarantee that it will last your lifetime, but tax advantages mean that you're likely to get more mileage out of savings in an account based pension that you would from most other types of investments.

They're convenient

With an allocated pension, your income comes in regularly just as it did when you were working, with payments going automatically to the bank, building society or other account you choose. There's virtually no paperwork or record-keeping to worry about.

This simplicity is the reason many people choose to consolidate all their retirement savings in an account based pension, rather than having to keep track of lots of individual investments.

They're flexible

With an allocated pension you can:

• vary the level of income you receive (a minimum percentage factor drawdown applies);
• choose whatever frequency of payment suits you - monthly, quarterly, semi-annually or annually;
• withdraw lump sums if you need to (known as 'commutations', these withdrawals reduce the balance in your account and may also change the amount of tax you pay on the pension payments);
• specify who will receive the balance of your account on your death, in what proportions and in what form; and
• select from a range of investment options that you can vary to meet you changing needs.

They're Tax-effective

The investment earnings added to your allocated pension account are tax free. You do pay income tax on regular payments you receive, but often they'll include a tax-free 'deductible component'. You'll also normally qualify for a 15% tax rebate.

The overall effect of these tax concessions is that you can receive quite a substantial income each year and still pay little of no tax.

For those over 60 years of age after 1 July 2007 the income is exempt and you pay net tax.

Part of the above material was reproduced with the kind permission of Macquarie Investment Management Limited