Planning for retirement is more than saving – you’re working to make your money last. That’s where annuities can enter the conversation.
An annuity is an investment product that some Australians use to get a steady income in retirement. It can be especially useful for people looking to reduce the risk of outliving their savings.
In this article, we’ll unpack what annuities are, how they work, and the different types available in Australia. We’ll also walk through their pros and cons, how they’re regulated, and what to consider when thinking about retirement income options.
Let’s start with the basics to understand how annuities fit into the bigger picture.
What is an annuity?
An annuity is a financial product that provides a series of income payments in exchange for an upfront lump sum. The idea is you hand over a set amount of money to an annuity provider, and in return receive regular income for a set period or for life.
Annuities are often used to help manage income needs in retirement, especially for those who prefer certainty over market fluctuations. For some retirees, knowing they’ll receive income at regular intervals can ease money worries and make budgeting simpler.
These aren’t typical investments aimed at growth. Instead, they’re structured to support consistent income, which is why they’re sometimes included in retirement income strategies.
How annuities work
To set up an annuity, you invest a lump sum with a provider, usually a life insurance company. In return, you receive income at regular intervals – monthly, quarterly or annually.
As mentioned, the payments can last for a fixed period or for the rest of your life. The amount and structure of these payments depend on the type of annuity you choose.
Key factors that affect how an annuity works
- The amount you invest – the more you contribute, the higher your potential income
- The duration – whether the annuity is for a fixed term or lifetime
- When payments begin – immediately or at a later (deferred) date
- Indexation – whether payments increase over time
Payment options may include:
- Fixed payments – the amount stays the same throughout the term
- Indexed payments – payments increase each year
- Variable payments – linked to the performance of an investment option (which is a less common option)
Each of these choices impacts your income, flexibility, and how the annuity supports your financial goals. As we’ve said, annuities focus on income over growth, and how they’re structured can vary quite a bit. Now, let’s look at how these factors influence the different annuity types available.
Types of annuities in Australia
There are several types of annuities available in Australia. Each has its own structure, payment style and purpose. Here’s a quick breakdown:
By payment length
- Lifetime annuities : Provide income payments for as long as you live. These are often chosen by people looking to manage the risk of outliving their savings.
- Fixed-term annuities : Pay income for a set number of years. Once the term ends, payments stop – even if you're still alive.
By payment structure
- Indexed annuities : Increase payments each year, often to keep pace with inflation . These can help maintain purchasing power over time.
- Non-indexed annuities : Offer fixed payments. These stay the same but may lose value in real terms if living costs rise.
By start date
- Immediate annuities : Start paying income soon after you invest the lump sum.
- Deferred annuities : Begin payments at a set later date. These may suit those planning ahead for future income needs.
Note: Annuities are sometimes considered alongside account-based pensions offered by super funds , to help Australians manage retirement income. Both serve different roles and come with different features.
Pros and cons of annuities
Annuities offer a unique set of features. For some, they can help manage income needs in retirement. For others, the trade-offs may not suit their goals. Here are some of the potential benefits and drawbacks to consider:
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Potential benefits |
Potential drawbacks |
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Reliable income
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Locked in
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Pays at regular intervals
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Not always inflation-proof
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Designed for life
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Limited flexibility
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Set and forget
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Provider risk
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Some people want certainty in retirement. Some want control. As with all investment products, it depends on your goals and risk tolerance .
How are annuities regulated and protected?
Annuities provide long-term income, so it’s important to understand who’s behind the product and what protections exist if things go wrong.
In Australia, annuities are regulated by the Australian Securities and Investments Commission (ASIC) . As noted, these products usually offered by life insurance companies, which must follow strict rules and reporting standards.
Unlike bank deposits, annuities aren’t covered by the government’s Financial Claims Scheme. That means there’s no guarantee from the Australian Government if the provider fails.
However, providers must hold enough capital to meet their payment obligations. These are known as solvency and capital adequacy requirements. They’re in place to help protect people receiving annuity payments.
Before buying an annuity, it’s worth checking the provider’s financial strength rating. This gives you an idea of how stable the company is. You should also read the product disclosure statement (PDS) , which explains the key features, risks and costs.
Other things to consider
Annuities can play different roles depending on your broader financial situation, including how you manage super and government benefits.
Age Pension impact
Income from an annuity may affect your Age Pension payments. That said, recent changes offer more favourable treatment for some lifetime annuities. These changes aim to encourage steady income streams in retirement.
Part of a bigger picture
An annuity is rarely the only income source in retirement. It may be used alongside super, savings, or account-based pensions. The balance between these can shape how much flexibility or certainty you have.
Retirement Income Covenant
Super funds must now help members consider how to create income after they retire. Some may include annuities (or similar products) as part of that strategy.
Tax treatment
Annuities may receive concessional tax treatment, especially if you buy them using your super . But the details can vary depending on your age, income, and how the product is set up.
The impact of an annuity on things like tax, super, or the Age Pension will depend on your personal circumstances. It’s worth speaking with a financial adviser if you’re unsure how it could apply to you.
Are annuities right for everyone?
Annuities can suit some people, but they’re not a universal solution. Like any product, they have strengths and trade-offs.
Some Australians value the predictable income and simple setup. Others prefer more flexibility or want to stay invested in growth assets.
As we’ve said, your goals, risk comfort and retirement timeline all play a role – as does how you plan to use your super or other savings.
Annuities may work well alongside other income sources, but they’re not your only option. Whether you’re aiming for lifetime income or short-term certainty, the right setup depends on your needs. It’s not about choosing the “best” product but understanding what each one offers – and deciding if it lines up with your plan.
What it means for your future
Annuities are structured to turn savings into steady income. That’s their core purpose. They won’t suit every situation, but they’re worth knowing about – especially if long-term stability matters to you.
The key is knowing how they work, what affects your income, and how they might fit with your other retirement plans.
It’s your future, your goals, and your call. The more informed you are, the more confident you can feel shaping the retirement you want.
Now’s a great time to explore your options and start building a strategy that works for you.
