Variable Benefit Plans in Australia: 2025 Guide to Flexible Retirement Income

As Australians prepare for longer retirements and increasing economic uncertainty, the demand for more adaptable income solutions is on the rise. Enter the variable benefit plan—a retirement income option that’s gathering momentum in 2025. Unlike traditional pension models, variable benefit plans offer retirees a mix of flexibility, investment potential, and risk-sharing. But how do they work, and are they a fit for your financial future?

Understanding Variable Benefit Plans

Variable benefit plans (VBPs) are a type of retirement income stream where payments fluctuate based on the performance of the underlying investment portfolio. Instead of locking in a fixed pension, retirees draw income from an account-based structure. This means the amount you receive can rise or fall with market returns, subject to minimum withdrawal rules set by the Australian government.

• Flexibility: Withdrawals can be adjusted within regulatory minimums and maximums.
• Investment Growth: Account balances remain invested, offering potential for higher returns over time.
• Longevity Risk: Unlike defined benefit pensions, there’s no guaranteed income for life—careful planning is required.

With Australia’s superannuation system maturing, variable benefit plans have become a popular choice for those who want control over their assets and the possibility of leaving a bequest to heirs.

2025 Policy Updates and Market Trends

Recent policy shifts have further shaped the landscape for variable benefit plans:

• Retirement Income Covenant: Enforced since 2022, this regulation requires super funds to assist members in developing retirement income strategies, leading to greater awareness and improved VBP products.
• Minimum Drawdown Rules: The temporary COVID-19 reductions have ended, with the minimum annual drawdown rates reverting in July 2024. This impacts how much retirees must withdraw each year from account-based pensions, including VBPs.
• Product Innovation: In 2025, funds are introducing hybrid solutions, combining variable benefits with longevity protection or insurance add-ons, to address concerns about outliving savings.

For example, several major superannuation funds, such as AustralianSuper and REST, have launched enhanced variable income streams, allowing retirees to tailor their asset allocations and switch between investment options even after retirement.

Weighing the Pros and Cons: Is a Variable Benefit Plan Right for You?

Choosing a variable benefit plan isn’t just about chasing returns—it’s about aligning your retirement income with your lifestyle and risk tolerance. Here’s what to consider:

• Pros:
• Flexibility to adjust income as needs change
• Potential for investment growth, particularly in strong markets
• Ability to leave remaining balance to beneficiaries
• Cons:
• Income volatility—payments may fall in poor market conditions
• Risk of depleting savings if withdrawals are too high or investments underperform
• Greater responsibility for managing investments and spending

Recent modelling by the Grattan Institute suggests that a diversified variable benefit approach can outperform traditional annuities over the long term, but only if retirees are comfortable with fluctuating income and actively manage their drawdowns.

Real-World Example: How Australians Are Using VBPs in 2025

Consider Jane, a 67-year-old retiree in Melbourne. She rolled her super into a variable benefit plan, choosing a balanced investment option. In 2023–24, strong market performance boosted her account balance, allowing her to increase her monthly withdrawals without eroding her capital. However, she’s mindful of the risk: after a market dip in early 2025, Jane adjusted her withdrawals downward, maintaining her buffer for future years. This flexibility—combined with the ability to leave any remaining funds to her children—is what makes VBPs attractive to many Australians.

Making the Most of Your Retirement Income Choices

Variable benefit plans are not a set-and-forget solution. They demand regular review and adjustment, especially as policy settings evolve and personal circumstances change. By staying informed about 2025’s regulatory landscape and product innovations, you can tailor your retirement strategy to suit your needs—whether you value flexibility, growth, or peace of mind.