Income Annuities in Australia: 2025 Guide to Retirement Stability

With Australia’s superannuation balances swelling and life expectancies rising, more retirees are looking for ways to turn their nest eggs into stable, long-term income. Enter the income annuity—a financial product that’s making headlines in 2025, thanks to new policy shifts and a growing appetite for retirement certainty. But how do income annuities stack up in today’s evolving financial landscape, and should you consider one for your own retirement?

What Is an Income Annuity?

An income annuity is a contract with a life insurer or superannuation fund where you exchange a lump sum (often from your super) for guaranteed income payments over a set period or for life. Unlike account-based pensions, which can fluctuate with investment markets, income annuities provide fixed or inflation-linked payments that can help smooth out your retirement budget.

• Immediate annuities start paying income right away, often for life.

• Deferred annuities begin payments at a future date, allowing your investment to grow before withdrawals.

• Payments may be fixed or indexed to inflation, depending on the product.

In 2025, product innovation has accelerated: new offerings now feature greater flexibility in withdrawal options, partial commutations, and more competitive pricing, thanks to government encouragement for longevity risk solutions.

2025 Policy Updates: Why Income Annuities Are in the Spotlight

The Australian Government’s Retirement Income Covenant, in effect since mid-2022, is now fully embedded in 2025 retirement planning. Super funds are increasingly required to offer members solutions that balance income, flexibility, and risk management. Income annuities are central to this push, with the following policy shifts impacting the market:

• Superannuation rules: From July 2024, super funds must present members with standardised retirement income projections—including annuity options—making these products more visible at retirement.

• Means test concessions: The Age Pension means test continues to offer concessional treatment for lifetime annuities that meet certain criteria, potentially boosting Age Pension entitlements for some retirees.

• Product innovation: 2025 has seen insurers launch annuities with partial access features, combining security with the option to withdraw a portion in emergencies.

As a result, more Australians are weighing income annuities against account-based pensions, especially as market volatility and inflation concerns linger.

Weighing the Pros and Cons: Is an Income Annuity for You?

Income annuities aren’t a one-size-fits-all solution. Here’s how they stack up:

• Stability: Annuities provide peace of mind by locking in regular payments, regardless of market swings. This can make budgeting in retirement much easier.

• Longevity protection: Lifetime annuities ensure you won’t outlive your savings, a growing concern as more Australians reach their 90s and beyond.

• Inflation options: Some products offer inflation-linked payments, preserving your purchasing power in the face of rising costs.

• Liquidity trade-offs: Traditional annuities have limited flexibility—once you invest, your money is tied up. Newer products in 2025 may offer partial withdrawals, but always check the fine print.

• Estate planning: Depending on the product, there may be limited or no death benefits for your beneficiaries. Some annuities now offer guaranteed periods or return-of-premium features to address this.

For example, a 65-year-old with a $300,000 super balance could use $100,000 to purchase a lifetime income annuity, securing a base level of income for life. The remainder could stay in an account-based pension for flexibility and growth potential. This “blended” approach is increasingly recommended by advisers in 2025 as a way to balance security and opportunity.

Making the Decision: Key Questions to Ask in 2025

• How much of your super or savings do you want locked into guaranteed income?

• Are you willing to trade some liquidity for certainty?

• How do annuity payments compare to your Age Pension eligibility?

• What product features matter most—such as inflation protection or death benefits?

• Have you reviewed the latest annuity rates and product innovations?

Income annuities aren’t for everyone, but for many Australians retiring in 2025, they’re an increasingly important piece of the puzzle. With regulatory momentum and innovative product features, now is the time to consider if an annuity fits your retirement blueprint.