For Australians approaching or in retirement, the question of how to turn superannuation savings into a steady, reliable income stream is more pressing than ever. With market volatility, longer lifespans, and ongoing policy tweaks, annuities are back in the spotlight for 2025. But are they the magic bullet for retirement income security, or just another piece in the complex financial puzzle?
What Are Annuities, and Why Are They Making a Comeback?
An annuity is a financial product that converts a lump sum—often from your super—into a guaranteed income stream for a set period or for life. Unlike account-based pensions, annuities aren’t directly exposed to market swings, making them especially attractive in uncertain times.
- Lifetime annuities pay out until you pass away, providing certainty and protection against outliving your savings.
- Fixed-term annuities provide income for a set number of years, then return any residual value at the end.
2025 has brought a renewed focus on annuities, driven by a confluence of factors: volatile equity markets, rising interest rates, and government reforms aimed at boosting post-retirement security.
2025 Policy Updates: The Changing Landscape for Annuities
This year, the Australian Government and APRA have rolled out several changes impacting annuities:
- Retirement Income Covenant (RIC): Super funds are now required to offer better retirement income solutions, nudging more people to consider products like annuities for longevity risk protection.
- Tax incentives: The 2025 Federal Budget maintained tax-free status for the earnings of retirement-phase super accounts, including annuities purchased with super. Some providers now offer improved Centrelink means test advantages, potentially boosting Age Pension entitlements for annuity holders.
- Interest rate impact: With the RBA’s cash rate holding above 4% in early 2025, annuity rates have become noticeably more attractive after years of rock-bottom yields.
As a result, more retirees are blending annuities with account-based pensions to balance income certainty and flexibility.
Should You Consider an Annuity? Pros, Cons & Real-World Scenarios
Like any financial product, annuities have distinct advantages—and some notable drawbacks. Here’s what to weigh up:
Pros
- Predictable, guaranteed income that can last a lifetime
- Protection against market downturns and longevity risk
- Potential Age Pension boost due to favourable treatment under the means test (especially for lifetime annuities)
- Peace of mind—no need to worry about managing investments late in life
Cons
- Less flexibility—your capital is locked in, with limited or no access to lump sums
- Inflation risk—unless you choose an inflation-linked annuity, your payments may lose purchasing power over time
- Complexity—many Australians find annuity products hard to compare or understand
Example: Jane, 67, retires with $400,000 in super. She allocates $150,000 to a lifetime annuity, securing $8,000 per year for life (indexed to inflation). The rest stays in an account-based pension for flexibility and growth. This hybrid approach gives her peace of mind and helps her qualify for a higher part Age Pension due to how the annuity is assessed.
Key Trends and Tips for 2025
- Hybrid retirement strategies are the new norm—few go all-in on annuities, but many are blending them with flexible super pensions.
- Product innovation is ramping up: Providers are offering more inflation-protected and deferred annuity options to meet diverse retiree needs.
- Get quotes from multiple providers, as annuity rates and features can vary significantly in 2025’s competitive market.
- Keep an eye on policy updates—with the government reviewing retirement income frameworks, settings could shift again in coming years.
Conclusion: Are Annuities Right for You in 2025?
With policy support, rising rates, and a renewed focus on retirement security, annuities are shedding their dated image and finding a place in more Australians’ portfolios. But they’re not a one-size-fits-all solution. The best approach? Consider how an annuity fits into your broader retirement income plan, balancing certainty, flexibility, and your personal goals.