This article was originally published in the print edition of Retirement Magazine Vol. 3

More super should make for a more comfortable and stress-free retirement. But Australia’s super system is too complex. It stresses retirees out and leaves them without the confidence to spend their savings. Four in five people say planning for retirement is complicated, and 60 per cent don’t think their retirements will be financially stress-free.

After decades of compulsory super contributions, we risk falling at the last hurdle.

Too little guidance

The super system makes most big decisions for Australians while they are working, such as how much to contribute or how it’s invested. But once Australians retire, there is little guidance about how they should use their funds. The system casts retirees adrift.

The little guidance retirees do receive is unhelpful, steering them into account-based pensions, often drawn at the legislated minimum drawdown rates. This leaves them alone to self-manage their spending in the face of daunting uncertainty. 

No one knows how long they will live. On average, an Australian woman aged 65 today can expect to live until 88. But they also have a one-in-five chance of either dying before age 81 or of making it to 94. And no one knows what future investment returns will be, or how their cost of living might change. 

Bolder reform needed 

Successive federal governments have tried to prod and empower super funds to help their members into and during retirement. Principles have been used to set expectations – via the RIC and the accompanying Best Practice Principles – and financial advice laws are being reformed to make it easier for funds to provide personalised help at scale.

But these initiatives are not sufficient. They might improve fund offerings for some, but they fall short of the more structural changes needed to improve retirement outcomes for all. 

The RIC lacks any real penalty for funds that don’t take it seriously. Unsurprisingly, regulators have found funds patchy in their implementation. 

Freeing up funds to give more financial advice might help a few retirees who are lucky enough to be in a fund that does that well. But relying on more financial advice alone to help retirees navigate such a complex system will prove less effective, and more expensive, than simplifying the choices retirees face in the first place. And loosening the regulation of financial advice is dangerous without better consumer protections in place.

Cautious about spending savings

Together, all these factors lead many retirees to be cautious about their spending. Few retirees draw down on their retirement savings as intended. In fact, many are net savers – their savings continue to grow for decades after they retire.

Our analysis^[1] of the ABS Survey of Income and Housing^[2] shows that for people aged 60–64 in 2003–04, average super balances had grown by 37 per cent in real terms by the time they were aged 76–80 in 2019–20. And their average net financial wealth, excluding the equity in their home, grew by 14 per cent over the same period.

Australia’s $4.5 trillion^[3] superannuation system is turning into a massive, taxpayer-subsidised inheritance scheme. That’s not how super was supposed to work. 

Grattan Institute’s 2025 report, Simpler super: Taking the stress out of retirement^[1] recommended a three-pronged approach to ensure retirees get the most out of their super. 

Steer retirees into annuities

The widespread use of account-based pensions makes Australia a global outlier. Retirees in most rich countries are automatically given – or otherwise strongly encouraged to choose – an income guaranteed to last their entire lives.^[4]Research suggests having an income that is guaranteed to last until death can reduce stress^[5] and boost retirees’ spending.^[6]

Our report recommends that retirees be encouraged to use 80 per cent of their super balance above $250,000 to purchase an annuity.

The government could embed this pre-set guidance throughout the retirement income system. It could be included in all relevant communications with retirees from super funds, and especially at the point of retirement. Research shows^[7] that retirees tend to choose the option put in front of them.

The remaining super balance – $250,000, plus the remaining 20 per cent of any savings above that level – would continue to be drawn down via an account-based pension. Retirees would still have access to that portion of their super for large purchases if needed.

We showed that using some super to buy an annuity could boost expected retirement incomes by up to 25 per cent, compared to solely drawing on an account-based pension at legislated minimum rates. And it would ensure that the bulk of retirees’ incomes, irrespective of their super balances, would be guaranteed to last the rest of their lives.

Government should provide annuities…

But forcing super funds to offer annuities and steering retirees into them is a difficult, if not impossible task.

Super funds have resisted^[8] previous attempts by government to require them to offer annuities to retirees.^[9] Many people also struggle to understand and compare annuities. They often find it difficult to switch to a better deal later even if they can spot one.

Recent experience in the UK^[10] showed when required to purchase an annuity, most people simply took what their fund was offering and often got a poor deal.

Designing a regulatory regime that overcomes these issues is a huge challenge. The best option is for the government to directly offer annuities.

It should offer all retirees a simple lifetime annuity as the baseline option, but could also offer alternatives including investment-linked lifetime income streams, where payments are guaranteed for life but the level can vary based on investment returns.

Priced fairly, administered by an independent agency, and with assets managed by the Future Fund, a government annuity would encourage take-up. Retirees would be more confident that they’re getting a good deal. 

… and provide better guidance

As the architect of Australia’s complicated retirement incomes system, the government has an obligation to help retirees navigate it.

Even with more guidance towards annuitisation, many retirees will still need help understanding the right purchase for them. And almost all retirees with super will need some help understanding how their super (and other income and assets) interacts with their Age Pension entitlement. 

The government offers a range of resources and services to workers and retirees. It should integrate them and build on them. 

A government guidance service would be less likely to be conflicted than the advice offered by super funds, and therefore more likely to be trusted by many retirees. It would be much better placed than super funds to help couples plan their retirement income, and to service people with diverse linguistic or other needs. It could be integrated with the myGov online portal and could also assist retirees to apply for the Age Pension. 

Better product regulation

Super funds have a big role to play in helping Australians in retirement. Even with widespread annuitisation and better government guidance, most retirees with super would continue to use an account-based pension. And many Australians would still seek guidance from their super fund.

But the regulation of retirement super is too light. More is needed. 

The performance test should be extended to account-based pensions, to weed out those that are poor-value. The government should ask APRA (the Australian Prudential Regulation Authority) to develop and maintain product performance assessments for account-based pensions and private lifetime-income products. 

The government should also create a shortlist of the top 10 super funds, selected by an independent expert panel, and then steer retirees towards those funds. Funds should be selected based on their governance and their capacity to deliver strong, risk-adjusted returns in the long term, and to provide good-quality guidance and advice to retirees. 

This would encourage all super funds to lift their game – including the quality of the guidance and support they provide to retiring members – because funds would compete to make the top 10 and stay there. It would also provide a better system for default fund status in a post-stapling world. 

Superannuation offers Australians the promise of a more comfortable and stress-free retirement. The government playing a bigger role could help turn that dream into reality. 

Brendan Coates is housing and economic security program director at the Grattan Institute. He is a former macro- financial economist with the World Bank in Indonesia and consulted for the Bank in Latin America. Before that, he worked in the Australian Treasury on tax-transfer system reform and macro-economic forecasting. He holds a Master of International Development Economics from the Australian National University and a Bachelor of Commerce and Arts from the University of Melbourne.