Key Highlights

  • More than 2.5 million Australians are set to retire within a decade.
  • Treasury's retirement income principles are shaping what super funds should offer.
  • A new APRA reporting framework is focusing funds on the retirement phase.
  • Tax-free pensions are limited by the $2.1 million transfer balance cap.

Australia's super system was built to help people save, and the policy focus is now shifting to how they spend. With more than 2.5 million Australians expected to retire in the next decade, according to the federal government, funds are being pushed to offer better retirement income products. This year, Treasury has published best practice principles, APRA is preparing to publish retirement data, and the Payday Super and $3 million balance tax changes took effect on 1 July.

The numbers behind the push

In February, Assistant Treasurer Daniel Mulino and Treasurer Jim Chalmers released a joint statement saying the super system holds $4.5 trillion and that "more than 2.5 million Australians" are expected to retire in the next decade.

The ministers said they wanted "as much of a policy and product focus on the retirement phase as there is on the accumulation phase".

That reflects a long-running criticism. For three decades the system has been good at growing balances through compulsory contributions, and the Superannuation Guarantee reached 12% of Earnings in 2025. It has been less good at helping members turn those balances into a reliable income.

What funds are now expected to offer

The February release announced two measures, both building on the Retirement Income Covenant, which since July 2022 has required trustees to have a retirement income strategy for their members.

The first is the Best Practice Principles for Superannuation Retirement Income Solutions, published by Treasury. These are guidance for trustees, not new law. According to the release, the principles cover three areas:

  • Understanding members and their circumstances
  • Designing retirement income solutions that are fit for purpose
  • Engaging members when they make retirement income decisions.

The second is a Retirement Reporting Framework. Under it, APRA will collect and publish data on how funds are performing in the retirement phase. The government says this will show what funds offer and how members fare, and will let the sector's progress be tracked. The release said both measures will be reviewed regularly.

In practice, it means funds will be compared publicly on retirement outcomes as well as Investment returns and fees.

APRA has said much the same. In a speech to an industry retirement summit on 22 October, Deputy Chair David Bradbury said APRA wanted outcomes in the retirement phase to match the system's success in accumulation. He put the amount held in APRA-regulated funds at about $3.4 trillion.

The tax-free retirement phase and the $2.1 million cap

Much of the value of the retirement phase comes from tax. When a member meets a condition of release, such as retiring after preservation age, they can move super into an account-based pension.

Once money is in the retirement phase, the fund pays no tax on investment earnings from those assets. In the accumulation phase, earnings are taxed at up to 15%. For members aged 60 and over, pension payments from a taxed fund are generally tax-free as well.

Each pension must pay out at least a minimum amount each year. The minimum is set as a percentage of the Account Balance and rises with age, for example 5% for those aged 65 to 74.

The tax-free treatment has a limit. The transfer balance cap sets the maximum a person can move into the retirement phase over their lifetime.

The general transfer balance cap was indexed to $2.1 million from 1 July 2026, according to industry summaries of the 2026–27 thresholds. Some people who started a retirement income stream before then have a personal cap below $2.1 million, because indexation applies only to the unused portion of their cap.

Money above the cap can stay in the accumulation phase, where earnings remain taxed at up to 15%, or it can be withdrawn.

The largest balances now also face Division 296, which became law from 1 July 2026. The ATO says it imposes an extra 15% on earnings attributable to the part of a total super balance above $3 million, and a further 10% above $10 million. The ATO describes those earnings as being based on the fund's taxable income.

Hypothetical example: accumulation versus retirement phase

Hypothetical example: Maria is 67, has retired and has $600,000 in super. Her balance is well under the $2.1 million general cap.

Suppose her investments earn 6% in a year, or $36,000.

  • If her money stayed in the accumulation phase, those earnings could be taxed at up to 15%, or up to $5,400. In practice the actual tax would usually be lower because of franking credits and the fund's capital gains discount.
  • If she moves the whole $600,000 into an account-based pension, the fund pays no tax on the $36,000 of earnings from those assets.
  • At age 67, her minimum annual drawdown is 5% of her balance, or $30,000 in a full year. Because she is over 60, those payments would generally be tax-free.

The example ignores fees, insurance, the Age Pension means test and changes in investment value during the year. It shows why many retirees move savings into the retirement phase. It is not a recommendation for any particular product.

Where the gaps remain

The principles do not require any fund to offer a particular product. Lifetime income and longevity products are still a small part of the market, and many retirees still take lump sums or draw only the legal minimum.

Engagement is the main problem. The principles ask funds to understand their members and help them make decisions, but what funds can say without crossing into personal financial advice is still a sensitive question.

Data will matter as well. Until APRA publishes retirement-phase figures under the new framework, members will find it hard to compare funds' retirement offerings like for like.

What to watch

  • APRA's Retirement Reporting Framework: watch for the first data collection and publication timetable.
  • Updates to Treasury's Best Practice Principles, which the government says will be reviewed regularly.
  • Division 296: the ATO's law companion ruling on the $3 million tax was still being drafted at last check, and the first year is measured on balances at 30 June 2027.
  • Transfer balance cap: future indexation depends on CPI and occurs in set increments.
  • Fund announcements of new retirement income and longevity products ahead of the APRA data.