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“[Australia’s] superannuation system is world-class at building
retirement savings, but it is still a work in progress when it
comes to delivering sustainable incomes in retirement.”
ALEX BELL, CHALLENGER
needs. After age 65, individuals can apply
to start receiving lifelong monthly payouts
using their accrued retirement savings.
Elsewhere in the Asia-Pacific region, private
sector employees and non-pensionable
public sector employees in Malaysia contribute
to provident funds, with social assistance paid to
those with insufficient income. China has
a three-tier pension system, consisting
of a basic defined benefit pension, a
mandatory second-tier plan and a voluntary
third-tier scheme.
Australia’s A$4.5 trillion superannuation
system mandates compulsory contributions
by employers, but it is ultimately up
to individual members to decide what they
do with their money once they move into
the retirement phase.
Research published in 2025 by the
New York-based TIAA Institute analysing
the retirement systems of 11 countries
found that Australia was still in the early
stages of implementing its income covenant
requiring superannuation fund trustees
to formulate, regularly review and give
effect to a retirement income strategy for
their members.
Until recently, UniSuper and ART were
the only superannuation funds directly
offering lifetime income products, although
some make products available from outside
providers. New products have recently been
launched by MLC and AMP, and other funds
are now well advanced in developing and
launching their own lifetime income solutions.
“It is likely that these new solutions will
take time to gain significant adoption,
particularly as the rest of the retirement
infrastructure will need time to develop,”
notes the TIAA Institute.
UNDERSTAND THE BENEFITS
Dr Geoff Warren, research fellow at the
Conexus Institute and honorary associate
professor at the Australian National
University, says that while there are
a lot of new products being developed,
“traditionally, the take-up of annuities
has been abysmal”.
Warren co-authored a research paper,
released in January, titled Investment-linked
lifetime income streams: Exploring the
(considerable) benefits for super fund
members. Among the key findings were
that investment-linked lifetime income
streams (ILLIS) have the potential to
deliver higher and more sustainable income
returns than ABPs.
“Modelling shows that splitting assets at
retirement between an ABP and an ILLIS could
increase expected income by between 3 per cent
and 24 per cent depending on assumptions such
as the retiree’s available assets and whether the
ILLIS allocation is made at retirement or during
accumulation,” the report states.
Warren notes superannuation funds
can benefit their members by packaging
products into solutions that combine lifetime
annuity income streams with ABPs, enabling
both regular income and access to lump
sum withdrawals.
“If you present the member with that and
say, ‘Look, we think this package is right for
you’, that would be a gamechanger,” he says.
“I am hopeful that, once we progress to super
funds offering comprehensive retirement
solutions to members as a package, lifetime
income products will see much more interest
and take-up.”
Another selling point is that, for Age Pension
eligibility purposes, the value of any money
invested in lifetime income products is
discounted by 40 per cent, Warren says.
This means that retirees exceeding the assets
test limit could become eligible for the
Age Pension if they invest in a lifetime income
product, and that those already receiving
a part Age Pension may receive even higher
pension payments.
The 2026 Challenger Retirement
Happiness Index found that 76 per cent
of Australians aged 60 and above would feel
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