Most Australians fund their retirement through superannuation, accumulating savings during the accumulation phase before converting them into regular income once they meet a condition of release. With total super assets reaching $3.5 trillion in recent years, the superannuation industry plays a central role in funding retirement for millions.
This guide compares the main ways to turn your super savings into retirement income: account based pension (ABP) products, lifetime annuity options including CPI-linked annuities, and the newer category of innovative retirement income streams (IRIS). We’ll also touch on other options like the Age Pension and non-super investments. The focus is on how each works, the pros and cons, and how they affect your age pension entitlement and income certainty.
Information is current for Australian rules as at the 2025–26 financial year and is general information only—not personal advice tailored to your situation. Choosing the right income stream is a central part of structuring a sustainable retirement plan.
Quick Comparison: ABP vs Annuity vs Innovative Income Streams
Here’s the core distinction: an account based pension abp offers flexibility but no guarantee your money will last for life. A lifetime annuity provides guaranteed income but limited access to your capital. Innovative retirement income streams sit in the middle ground, pooling longevity risk while maintaining some investment market exposure.
Feature | Account-Based Pension | Lifetime Annuity | Innovative Streams (IRIS) |
|---|---|---|---|
Income certainty | No lifetime guarantee | Guaranteed for life | Designed to last for life (not dollar-guaranteed) |
Flexibility/capital access | High—lump sum withdrawals permitted | Very limited or none | Usually limited |
Investment market exposure | Full exposure to investment markets | None (fixed interest backing) | Partial exposure to growth assets |
Age Pension treatment | Fully counted; deemed income applies | 60%/30% asset taper; 60% income assessed | Similar to annuities if qualifying |
Typical user | Those wanting control and estate flexibility | Risk-averse seeking certainty | Income-maximisers wanting safeguards |
ABPs dominate the retirement phase, holding over 80% of super assets in pension form
Annuities and IRIS products remain niche but are growing as longevity concerns increase
Many retirees combine products to balance financial security with flexibility
- Understanding how these options fit together is critical when building a broader retirement income strategy.
Account-Based Pensions (ABPs) Explained
An account based pension is a retirement income stream you establish by transferring superannuation savings into a pension account after meeting a condition of release. Your super fund invests the balance according to your chosen investment options, and you draw regular payments until the balance runs out.
Eligibility generally requires reaching preservation age and retiring, or turning 65. For anyone born on or after 1 July 1964, preservation age is 60.
How income payments work: You must withdraw at least the minimum amount each financial year—4% if under 65, scaling to 6% at 65–74, 7% at 75–79, and up to 14% from age 95 onward. There’s no maximum amount, giving you control over drawdowns.
Investment control: You select from options like cash, fixed interest, shares, property, or diversified portfolios. Your balance and payments can rise or fall with market performance, exposing you to investment risk.
Tax treatment: For most people aged 60 or over, pension payments from a taxed super fund are tax free. Investment earnings within the pension phase are also generally tax free, subject to the $1.9 million transfer balance cap.
Age Pension interaction: ABPs count fully under the assets test. Post-2015 ABPs are subject to deeming for the income test—Centrelink assumes your balance earns a set rate (currently 0.25% on lower amounts, 2.25% on higher) regardless of actual investment returns. This deemed income affects your entitlement to government benefits.
Key pros:
Flexibility to change payment amounts and frequency
Access to lump sums when needed
Potential for growth through investment returns
Remaining balance can pass to beneficiaries
Key cons:
No guaranteed income for life
Exposure to market downturns creates sequencing risk, where poor returns early in retirement can significantly reduce how long your savings last.
Risk of running out of money if drawdowns are too high
Requires ongoing management decisions
Simple example: Starting with $600,000 at age 67, drawing 5% ($30,000) annually with 6% earnings before fees might sustain payments for 30+ years under average conditions. However, a significant market crash early in retirement could shorten this to 20 years—illustrating longevity risk without guarantees. These structures are explored in more detail when understanding how account-based pensions operate in retirement.
Lifetime Annuities and CPI-Linked Annuities
A lifetime annuity is a contract with a life company or super fund where you exchange a lump sum for guaranteed income for a fixed term or for life. Unlike ABPs, the provider assumes the investment risk and longevity risk.
Common types include:
Fixed-term annuities (e.g., 10–20 years)
Lifetime annuities (payments until death)
Level annuities (unchanging annual payment)
CPI-linked annuities (indexed to Consumer Price Index)
Variable or investment-linked annuities
CPI-linked lifetime annuities start at an agreed dollar amount and increase annually with inflation. For example, $100,000 might yield approximately $5,908 initially, rising each year to help maintain purchasing power over decades.
Trade-offs: In exchange for guarantees, you typically give up access to capital. Starting income may be lower than what an ABP invested in growth assets could generate (however your investment approach should evolve as you transition into retirement). Providers manage risk by pooling longevity across many annuitants and backing guarantees with fixed interest investments.
Age Pension rules for lifetime income streams commencing on or after 1 July 2019: 60% of the purchase price counts under the assets test until life expectancy (capped at age 84), then 30% thereafter. For the income test, 60% of payments are assessable—often more favourable than deeming for ABPs.
Tax treatment mirrors ABPs: if purchased with super by someone 60+, payments are generally tax free.
Key pros:
Guaranteed income for life—protection against outliving savings
Certainty for budgeting essentials
Potential Age Pension advantages compared to ABPs
Longevity protection without active management
Key cons:
Reduced flexibility and liquidity
Difficult to reverse the decision
Limited participation in equity market upside
Provider keeps remaining capital if you die early (though some offer death benefits)
Simple example: A 68-year-old investing $200,000 in a CPI-linked lifetime annuity might receive approximately $12,000–$14,000 per year initially, indexed to CPI. Centrelink would count $120,000 (60%) as an asset until age 84, then $60,000 (30%) thereafter, with 60% of the annual income assessed under the income test.
These structures share similarities with defined benefit pensions, which also provide income for life.
Innovative Retirement Income Streams (IRIS) and Other Lifetime Products
Since 1 July 2017, super law has allowed innovative superannuation income streams—sometimes called pooled lifetime products, group self-annuitisation, or longevity pools. These IRIS products blend features of ABPs and annuities.
Core design: Members pool longevity risk within a super fund while maintaining exposure to investment markets. Those who die earlier effectively support payments to those who live longer—enabling higher sustainable drawdowns than ABPs alone.
Products are typically offered inside large super funds rather than as standalone retail products, often branded as “lifetime pensions.” Income is determined by portfolio returns and mortality experience, adjusted periodically.
Key distinction: Income is not dollar-guaranteed like a traditional annuity, but designed to last for life at a target confidence level (often 80–90%). Payments might start 20–30% higher than a conservative ABP drawing at minimum rates.
Social services treatment: Qualifying IRIS products are assessed similarly to post-2019 lifetime annuities—60% then 30% of purchase price for assets, 60% of payments as income.
Key pros:
Higher expected income than cautious ABP drawdowns
Longevity pooling provides longevity protection
Ongoing exposure to growth assets
Potential Age Pension advantages
Key cons:
Payments can fluctuate (up or down 10–20% yearly)
Less flexibility than pure ABPs
Sometimes limited death benefits or capital access
Products can be complex to understand
Simple scenario: A retiree with $1 million super allocates 40% ($400,000) to an innovative retirement income product, potentially generating $25,000+ for essentials (adjusted for markets). The remaining 60% stays in an ABP for discretionary flexibility—extending total portfolio longevity versus ABP-only.
Other Retirement Income Options to Consider
ABPs, annuities, and innovative lifetime products sit alongside several other ways to fund retirement. Most Australians use a mix over time.
Age Pension: Government-paid, means-tested income for eligible Australians over Age Pension age. The income and assets tests can reduce or eliminate entitlement—super income streams are counted in both. Eligibility depends on how income and assets are assessed under Centrelink rules.
Transition to retirement (TTR): Available from preservation age while still working. TTR can supplement salary as people reduce hours, but isn’t a full retirement solution. Earnings remain taxed unlike the pension phase.
Lump sums from super: Many retirees take part of their super balance as a lump sum—for clearing debt, renovations, or emergency cash in a bank account. Large withdrawals can affect Age Pension tests once reinvested outside super. This can introduce the risk of depleting capital over time if not managed carefully.
Non-super investments: Term deposits, managed funds, investment property, and share portfolios provide income via interest, rent, or dividends. All are counted in Centrelink means tests.
Downsizing and home equity release: Some sell the family home or use equity release products (like HEAS) to support spending. The home is treated differently under Age Pension rules—generally exempt as an asset.
The right mix depends on health, risk tolerance, desire for more certainty, estate planning goals, and whether you have a partner.
Comparing ABP vs Annuity vs Innovative Streams: How to Decide
No single income product suits everyone. Most people benefit from combining flexible and secure streams to cover different spending needs.
Consider “bucketed” spending: secure income (annuities or IRIS) for essential expenses like food, housing, and healthcare; flexible income (ABPs) for discretionary spending like travel and hobbies. This aligns with understanding the real financial commitments of retirement.
ABPs might suit you if: You want flexibility, are comfortable with market volatility, prioritise leaving money to beneficiaries, and can manage drawdowns sensibly.
Annuities might suit you if: You prioritise certainty for life, have a long life expectancy, are risk-averse, or find investment decisions stressful.
IRIS might suit you if: You want higher income than conservative ABP drawdowns, prefer ongoing market participation, but still want a form of lifetime income without fully locking capital away.
Age Pension interactions matter: The mix between ABPs and lifetime income streams can change entitlements, especially as you move from self-funded to part-pension status. Moving from deeming (ABPs) to the more favourable assessment for lifetime products can boost government benefits.
Example: A couple in their late 60s with $500,000 super each and modest Age Pension entitlement could shift $150,000 each to a lifetime product. This might secure approximately $12,000 per year in stable base income, while the remaining ABP balance provides flexibility and growth—potentially adding $50,000+ to total lifetime income compared to ABP-only under typical investment returns.
Stress-test plans under different scenarios. Professional advice or stochastic modelling tools can help project outcomes across various market returns and longevity assumptions.
FAQs: Retirement Income Streams and Australian Rules
Can I have both an account-based pension and an annuity? Yes. Many retirees combine products—using annuities for essential income and ABPs for flexibility. This approach can improve both security and access to funds.
What happens to my retirement income stream when I die? ABP balances can pass to a spouse (reversionary pension) or be paid as lump sums to dependents or your estate. Annuities often have limited or no death benefits unless you’ve selected a “money-back” or reversionary option. IRIS death benefits vary by product—check the PDS.
How do rising deeming rates affect my Age Pension? Higher deeming rates can reduce Age Pension under the income test even if your actual investment returns haven’t changed. This particularly affects ABPs, where the full balance is deemed. Treasury has proposed potential increases to deeming rates.
Is my retirement income tax-free after age 60? Most super income streams from a taxed fund are tax free once you’re 60 or over. However, non-super investments, some defined benefit pensions, and income from previous years may still generate taxable income.
Are innovative retirement income streams safe? IRIS products are regulated under super law and subject to APRA prudential oversight. They’re not government-guaranteed, but providers must meet strict design rules. Always check the provider’s structure, fees, and product disclosure statement before committing.
Should I lock in a lifetime annuity now or wait? Interest rates affect annuity pricing—higher rates generally mean better payouts (potentially 10–20% more). However, delaying means you’re older when payments start, reducing the benefit period. Consider your health, threshold day requirements, and the risk of procrastination versus keeping options open. Financial planners can help model scenarios.
How Money Path Can Help
Understanding retirement income streams requires balancing complex rules around taxation, Centrelink treatment, and investment considerations. A structured approach in the years leading up to retirement can significantly improve outcomes. Money Path provides educational resources to help you navigate these decisions, including guidance on how different products affect your income level and age pension entitlement. For personalised strategies around your super fund and retirement savings, consider seeking regulated financial advice.
