Super complexity could carry hefty costs for retirees

A new report warns that complexity in Australia’s super system could strip retirees of up to $136,000 in lifetime income.

A typical new retiree with super could miss out on as much as $136,000 – or $6,500 a year – over the course of their retirement due to the daunting complexity of Australia’s retirement system, a landmark new report by the Super Members Council (SMC) has found.

The modelling has highlighted the urgent need to fast-track long-awaited financial advice reforms and design simpler, smarter retirement pathways that are easier for everyday Australians to navigate.

A “silver tsunami” of 2.8 million Australians is now racing towards retirement over the next decade.

This influx will double the number of people retiring each year from 150,000 to 300,000. The amount of money these retirees will have in super by age 65 will also nearly double, rising from around $750 billion over the past decade to almost $1.5 trillion in the next.

In its detailed reform blueprint, Retirement revolution: Simpler smarter retirement, the council updates Australia’s evidence base on retiree incomes in what it calls the most comprehensive study since the government’s 2020 Retirement Income Review.

The report outlined how the current complexity and rigidity of Australia’s retirement system act as barriers to a simple, seamless transition into retirement.

It found that around 700,000 Australians over 65 who are not working full time still have their super sitting in taxed savings phase accounts, reducing their disposable income.

The SMC has called for short-term reforms to prepare the system for the coming wave of retirees, including expanding access to simple and affordable financial advice and digital tools, enabling safe and effective data sharing with government to help funds optimise incomes, supporting smart retirement pathways that suggest the best income solution for members, preserving flexibility and retiree choice, and fixing issues that cause dual super accounts.

It also proposes bolder, longer-term reforms, such as simplifying the transition to tax-free income by automatically removing tax from accounts at age 65 for eligible members, rethinking minimum drawdown rules so Australians with low balances can still benefit from the tax-free phase, and strengthening consumer protection by applying a quality filter on all retirement products.

The report also aimed to dispel the myth that retirees are underspending their super, finding that drawdowns are now typically higher than minimum requirements. In 2024–25, about 64 per cent of retirees with tax-free retirement accounts withdrew above the minimum, with this rising to 77 per cent for those with less than $50,000 in super.

“We need to make the shift into retirement so much simpler, easier and more intuitive for everyday Australians,” said Super Members Council CEO Misha Schubert.

“This challenge is now incredibly urgent as almost 3 million Australians start to race towards retirement in coming years.

“Moving to a system of simpler, smarter pathways into retirement would mean every Australian could retire with confidence, knowing they’re not missing out on money to pay the bills and enjoy life to the fullest.”