As debate continues over the proposed tax on super balances above $3 million, let’s not lose sight of another critical retirement issue.
For the majority of Australian retirees, the Age Pension remains a significant source of income. Yet despite its importance, it’s one of the most misunderstood aspects of our retirement system, and that confusion is costing retirees dearly.
AMP-commissioned research shows that many Australians struggle with the ins and outs of how the Age Pension system works. This isn’t just a knowledge gap, it’s a structural weakness in a system designed to support dignity in retirement. As more Australians reach retirement age, many are either missing out on income they’re entitled to or making decisions that reduce their long-term financial wellbeing.
Even as superannuation balances grow, the Age Pension continues to underpin retirement outcomes for most Australians. Yet confusion around how pension eligibility is assessed – particularly through the assets test – remains widespread. Many retirees don’t realise that how their super is structured can significantly affect their pension entitlements. This lack of understanding leads to avoidable hardship.
Ironically, the system already contains powerful incentives, for example Centrelink concessions on certain retirement income streams can reduce the amount of super counted in the assets test, potentially increasing Age Pension payments. But the rules are complex, poorly understood, and underutilised.
As a result, many retirees take an overly cautious approach, preserving assets they don’t need, drawing down the bare minimum, and living more frugally than necessary. The fear of running out of money is real, but it’s often fuelled by a lack of guidance and confidence.
This is where the superannuation industry has both a responsibility and an opportunity.
The introduction of the Retirement Income Covenant in 2022 marked a pivotal shift. It placed a legal obligation on super funds to help members balance income, risk, and flexibility in retirement. But two years on, it’s clear that policy alone isn’t enough. What’s needed now is far more innovation from the industry itself.
Super funds must do more than offer generic retirement options. They must actively design solutions that account for the complexity of the broader system — particularly how super and the Age Pension interact — and make those solutions easy for members to understand and use.
Thoughtful product design can make a meaningful difference. When super is structured with the Age Pension in mind, retirees can unlock thousands of dollars in additional income over the course of retirement — all without needing to become financial experts. That’s not just a better outcome for individuals — it’s a more efficient and equitable system overall.
But this can’t be achieved through product innovation alone. We need a national push to improve retirement literacy, led by an industry committed to simplifying complexity and delivering solutions that work in the real world. Australians deserve to understand how the Age Pension and superannuation work together — and how to make the most of both.
With millions retiring over the next decade, the need for action is urgent. If we don’t step up — as an industry — to support them through this transition, we risk entrenching inequality and anxiety in what should be a time of security and confidence.
The rules exist. The incentives exist. The opportunity exists. But unlocking their full potential will require a wave of innovation across the superannuation sector — backed by the will to demystify the system and better serve the Australians it was built for.
Alexis George is chief executive officer of AMP
