With economic uncertainty and longer lifespans, Australian retirees are searching for ways to lock in reliable income. Annuities—long overshadowed by superannuation and account-based pensions—are back in the spotlight in 2025. Should you consider adding them to your retirement toolkit?
What is an Annuity, and How Does It Work?
An annuity is a financial product that converts your super or savings into a guaranteed stream of income, either for a fixed period or for life. You hand over a lump sum to an insurer or provider, and they promise to pay you regular income regardless of market ups and downs. It’s a straightforward concept, but there are key variations:
- Lifetime annuities: Pay income for as long as you live.
- Fixed-term annuities: Pay income for a set number of years (e.g., 10 years).
- Indexed annuities: Payments increase with inflation, protecting your spending power.
- Deferred annuities: Start payments at a future date—useful for planning beyond age pension eligibility.
In 2025, annuity providers in Australia include Challenger, AMP, and a handful of newer fintech entrants, offering both traditional and flexible products. The core appeal: income certainty, protection from market downturns, and peace of mind for those worried about outliving their savings.
2025 Policy Updates: Why Annuities Are Making a Comeback
Several recent changes have sparked renewed interest in annuities:
- Retirement Income Covenant: The Australian Government’s Retirement Income Covenant, introduced in 2022 and refined in 2025, now requires super funds to offer more comprehensive retirement income strategies—including annuities. This means more retirees are being introduced to annuities as part of their fund’s default guidance.
- Means Test Changes: Centrelink’s Age Pension rules now provide more favourable treatment for certain annuities, especially those that meet the ‘Complying Income Stream’ criteria. For example, only 60% of a lifetime annuity’s purchase price is counted for assets test purposes (dropping to 30% after age 84), which can boost age pension eligibility for some.
- Tax and Regulatory Updates: The 2025 Federal Budget confirmed no new taxes on annuity payments and preserved their status as tax-free if purchased with superannuation money after age 60.
These policy tweaks make annuities more attractive, particularly for Australians with moderate super balances who want to supplement the Age Pension with a secure income.
Are Annuities Right for You? Weighing the Pros and Cons
Annuities aren’t for everyone, but they can play a valuable role in a diversified retirement plan. Here’s how to decide if they fit your needs:
- Peace of Mind: If you worry about running out of money or don’t want to track investments, an annuity’s guaranteed income can offer priceless security.
- Market Insulation: Annuities shield you from market crashes—unlike account-based pensions, which can see payments drop during downturns.
- Less Flexibility: Once purchased, your money is locked in. You can’t access large lump sums for emergencies, and breaking an annuity early often means heavy penalties.
- Inflation Risk: Fixed annuities can lose real value over time if not indexed. In 2025, some providers offer CPI-linked payments, but these start lower than fixed-rate options.
Real-world example: Margaret, 67, uses $200,000 of her super to buy a lifetime annuity with inflation protection, guaranteeing her $10,000 per year for life (indexed to CPI). This supplements her Age Pension and gives her peace of mind, while the rest of her super remains invested for growth and flexibility.
How to Buy an Annuity in 2025: Steps, Tips & Pitfalls
Ready to explore annuities? Here’s how to proceed:
- Compare products: Use providers’ calculators to see projected income and features. Check the Product Disclosure Statement (PDS) for surrender options and inflation protection.
- Check eligibility: Some annuities require minimum purchase amounts (often $10,000 or more). Make sure you understand the Centrelink and tax implications.
- Consider blending: Many retirees use a ‘layered’ approach—some funds in annuities for certainty, some in account-based pensions for flexibility and growth.
- Review provider strength: Annuity payments are backed by the provider, not the government. Look for APRA-regulated issuers with strong financial ratings.
Watch for: Hidden fees, surrender penalties, and the impact of inflation on fixed payments. In 2025, new comparison tools from ASIC’s Moneysmart site make it easier to review options side-by-side.
