Immediate Payment Annuity: A Guide for Australians in 2025

Australians approaching retirement face a critical question: How can you turn your hard-earned super or savings into dependable, long-term income? Immediate payment annuities are gaining traction in 2025 as a financial product that promises just that—a stream of guaranteed payments, starting almost straight away, in exchange for a lump sum investment. But is this strategy right for you?

How Immediate Payment Annuities Work

An immediate payment annuity is a contract with a life insurer or super provider where you hand over a lump sum (typically from super or savings), and in return, you receive a regular income for a set period or for life. Unlike account-based pensions, these annuities offer certainty: your payments don’t depend on investment performance or market swings.

• Start date: Payments begin within 12 months of investment—often within weeks.

• Payment frequency: Monthly, quarterly, or annually, as you choose.

• Duration: For a fixed term (e.g., 10 years) or for life.

• Amount: Determined by your age, gender, investment amount, interest rates, and chosen features (like inflation protection or reversionary benefits for a spouse).

For example, a 67-year-old retiree in Sydney might invest $300,000 from super into an immediate annuity in 2025, receiving a fixed $1,100 per month for life. If they opt for inflation-linked payments, the starting income is lower but rises each year to help keep up with living costs.

Why Immediate Annuities Are Back in the Spotlight for 2025

Recent changes in Australia’s retirement income landscape are making immediate annuities more attractive:

• Interest rate environment: With the RBA holding rates at higher-than-2020s levels through early 2025, annuity providers have been able to offer better rates than in recent years.

• Retirement Income Covenant: Super funds are under new obligations to help members generate stable income in retirement, and many are integrating annuity options into their product suites.

• Centrelink treatment: Recent Services Australia updates mean a portion of your annuity purchase price may be exempt from the assets test, improving Age Pension eligibility for some retirees.

Notably, Challenger and AMP report a surge in annuity inquiries in 2025 as retirees seek protection from market volatility and longevity risk—the risk of outliving their savings.

Who Should Consider an Immediate Payment Annuity?

Immediate payment annuities aren’t for everyone, but they can play a valuable role in a diversified retirement strategy. Consider one if you:

• Value certainty and want to lock in income, no matter what markets do.

• Are concerned about longevity risk—outliving your money.

• Prefer a simple, set-and-forget product over managing investments yourself.

• Want to supplement the Age Pension with predictable cash flow.

However, there are trade-offs. Once you invest in an annuity, your capital is generally illiquid. Most products don’t allow withdrawals after a cooling-off period. You’re swapping the potential for higher investment returns for peace of mind. It’s also critical to compare providers, features, and fees—annuities are not one-size-fits-all.

2025 Trends and Real-World Examples

Let’s look at how Australians are using immediate annuities right now:

• Diversification: Many retirees use a portion of their super to buy an annuity for basic living costs, while keeping the rest in an account-based pension for flexibility and growth.

• Inflation protection: 2025 products increasingly offer CPI-linked payments, crucial given recent cost-of-living pressures.

• Reversionary options: Couples can select an annuity that continues payments to a surviving spouse, providing family security.

According to ASIC’s 2025 data, the average immediate annuity purchase amount has risen to over $220,000, reflecting increased confidence in their role as part of a robust retirement plan.

Making the Most of Immediate Annuities

With new regulations and competitive offerings in 2025, immediate payment annuities are more customisable than ever. The key is to align the product’s features with your retirement goals—whether that’s maximising Age Pension eligibility, ensuring income keeps pace with inflation, or providing for a partner.