How new ‘best practice principles’ could improve your retirement income 

A new set of government proposals aims to lift the bar when it comes to how superannuation funds help Australians turn their savings into higher, more reliable income that can last for life.

Treasury has released a consultation paper setting out Best Practice Principles for Retirement Income Solutions. The principles are designed to help super funds improve and develop better retirement solutions and support services for retiring members. While the principles don’t create new laws, they are intended to lift the overall standard of support members receive when they approach and enter retirement.

Australians saving for retirement can expect their super fund to launch improved tools and retirement products including options to enable higher income without the risk of running out.

For those running SMSFs, you may find the principles interesting in terms of best practice when turning savings into reliable income for retirement, and the options available for doing so.

Are retirees too nervous to spend their super?

For over three decades, Australia’s super system has excelled at helping people accumulate savings. But the retirement phase – when members use those savings to replace a percentage of their salary once they exit the workforce – has significantly lagged behind.

The government is concerned that many retirees end up being too frugal when it comes to spending their super, stating that around two-thirds of super balances at retirement remain unspent by life expectancy. From a system-wide perspective, it means super is performing poorly compared to the amounts being saved and the purpose the system was set up to achieve – to provide income in retirement and to offset the cost of the Age Pension. 

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What the new principles encourage

The principles are built around a simple idea: that funds should make it easier for members to turn savings into stable, lasting income. They encourage trustees to:

• Understand their members’ needs by using data and research to identify the needs of different groups of retirees
• Provide a broader suite of retirement tools, including access to lifetime income products (that guarantee payments continue for life) as well as account-based pensions and lump-sum options
• Design retirement ‘solutions’ that meet a wider range of needs and preferences around market risk and return, addressing:
  • The issue of lifespan uncertainty
  • Maintaining flexibility
  • Keeping pace with inflation
  • Having access to lump sums when needed. This includes drawdown pathways that are made sustainable by the protection given by the lifetime income component.
    Lifetime income components have the added advantage that they attract additional Age Pension entitlements for a high percentage of retirees. By adopting the principles, super funds can help retiring members make the most of this extra income source too.
• Communicate clearly and provide more guidance, including tools to assist members to understand and select the right components for their needs, for example, by designing personas, assisted choice tools and – if enabled by upcoming advice reforms – targeted prompts and simpler advice services.
• Review and improve continuously, ensuring retirement income solutions meet the needs of different member circumstances and lifestyles over time.

What this means for Australians

As Australians approach and enter retirement, the principles could make the retirement journey simpler, more transparent and more reliable.

You could expect to see:

• Clearer communication about your retirement options
• New and improved products that combine flexibility and income sustainability
• Tools that project your likely income – for example, income that can last your whole lifetime, not just until your balance runs out
• Guidance to help you make decisions.

Over time, these changes aim to help retirees enjoy better lifestyles and greater confidence, without unnecessary complexity or having to gamble on running out of money.

Note that SMSFs are also able to benefit from lifetime income products if they wish. For example, an SMSF member can roll over some of their balance to a super fund or insurer that offers a lifetime income option. The money can remain in the tax-free super environment (subject to the Transfer Balance Cap rules). 

When will the changes happen?

The government is reviewing industry submissions on the principles. Once finalised, super funds are expected to improve their alignment with the principles, alongside other reforms such as the Delivering Better Financial Outcomes (DBFO) advice package.

Importantly, the principles are voluntary. Funds won’t be required by law to adopt them – but if they don’t, they’ll be expected to be able to explain why to members.

Key takeaways

• Treasury has proposed new Best Practice Principles to guide how super funds help members turn their savings into reliable income in retirement.
• The goal is to make the retirement phase of super as effective as the accumulation phase – helping retirees receive income confidently and more sustainably.
• The principles encourage funds to design better retirement income products, including lifetime income streams, offer clearer communication, and provide more practical guidance.
• Many retirees currently draw too little and leave much of their super unspent; these changes aim to improve living standards and, at the same time, reduce the risk of outliving super savings.
• The principles are voluntary, but funds will need to be able to explain why if they don’t adopt them.