Australia has a well-regarded superannuation system. What we do not have is a retirement income system. These are not the same thing — and the gap between them is costing Australians billions of dollars a year.
In a new paper, we propose a change to how superannuation works as members approach the drawdown phase. The result would be higher balances for Australians as they move into retirement. More importantly, it would help transform our system into one which achieves its legislated objective: delivering income in retirement.
The ‘stranded balances’ problem
A symptom of our system’s lack of focus on retirement income is the extent of balances held by members aged 65 or over which sit in the accumulation phase but could legally be transferred to pension phase – which we call ‘stranded balances’.
From age 65 there is no legal barrier to members moving their super accounts into pension phase, even if they are still working. And as balances in pension phase earn tax free returns (rather than being taxed at 15%), members can boost their retirement wealth simply by instructing their funds to transfer their accounts to pension phase upon reaching age 65.
And yet large numbers of members do not. Using recent APRA data, we estimate that as of 31 December 2025:
- Over 1.5 million Australians aged 65 and over hold stranded balances in APRA-regulated funds.
- The aggregate value of these stranded balances is $326 billion — an average of over $210,000 per person.
These individuals are paying more than $2 billion in additional tax each year. Tax that would not be payable if their balances were shifted to pension phase.
A proposal for change
We propose a change to the law to help rectify this. A new measure – which we call 'MyIncome' – would require funds to take stronger action to transition members into tax-free pension phase from age 65 and require all balances to be moved to pension phase by age 75.
To be clear: we acknowledge that many stranded balances will belong to Australians who have no immediate need to commence drawing down on their superannuation. For example, some will still be earning an income from work. So why are we suggesting a change to the system that encourages them to do so?
There are two reasons:
- In most cases, moving to pension phase will still be in the individual’s best financial interests. Our paper provides analysis showing that, in all but a small minority of cases, individual wealth will increase even if pension payments are not spent but held in a low interest savings account.
- Just as importantly: promoting a shift to pension phase and commencing drawdowns will help reframe super as a source of income for older Australians, not just a savings vehicle. The purpose of super is to deliver income. We need positive action to tip members’ mindsets – and balances – towards income during retirement.
MyIncome
What are we proposing? Our MyIncome package requires super funds to take specific action at three distinct points in their members’ timelines. requirement
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From (member age)
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Fund action
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Applies to
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60
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From age 60, funds must begin gathering bank account details and verifying member identity.
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APRA regulated funds
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65
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Funds must offer each member a pre-set 'MyIncome' account-based pension. Accepting the offer requires no decisions by the member beyond saying ‘yes’ - drawdown and investment option settings are designed by the fund.
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APRA regulated funds
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75
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Any balance remaining in accumulation phase* must be transferred to pension phase and an income stream commenced
*subject to the Transfer Balance Cap
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All funds (including SMSFs)
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The cornerstone of this package is the requirement for funds to offer a ‘pre-set’ account-based pension at age 65. Members would not need to complete any forms, nor make any decisions regarding investment strategy or drawdown level. These settings would be determined by the fund in the same way as investment and insurance are pre-set in MySuper products. This ‘easy transfer’ arrangement removes a key friction constraining the transition of members to pension phase at age 65.
At age 75 we propose something stronger: all balances (other than those exceeding the Transfer Balance Cap) must be moved to pension phase. This would ensure super balances start being withdrawn to finance retirement spending – consistent with the legislated Objective of Superannuation – and are not used as a de facto bequest device. Enforcement of this measure would require an adverse consequence – such as pensions being paid to the Tax Office – for members who do not provide bank account details.
We do not propose to include a lifetime income stream in MyIncome. While lifetime income streams are under-utilised in Australia and can provide a significant boost to retirement incomes, we have preferred to retain full flexibility given the semi-default nature of our proposal. Introducing a lifetime component to MyIncome could be a possibility in the future.
Importantly, our proposal would not prevent funds from designing their own retirement solutions for members, personalised through the use of cohorting, guidance and personal advice as they see fit based on their membership profile. MyIncome would simply serve as a backstop for those members who do not engage. Further, members would retain full flexibility to change their investment strategy, adjust drawdown rates, take lump sums, or transfer to other retirement products (including lifetime income streams). The aim is to accelerate the shift into the tax-free environment and receiving income — while leaving room for individual circumstances to be accommodated.
A change for the better
MyIncome would not be costless. We estimate an impact to government revenue in the order of $1 billon per annum. Nor could it proceed without some regulatory change, including the anti-hawking provisions and design and distribution obligations applying to super funds.
But there is a bigger picture here. Despite our superannuation system being admired as a world leader in many respects, it falls short on the final, and arguably most important, part of the journey – the income phase. The MyIncome proposal is a measured response which will help address the $2 billion that members with stranded balances are missing out on each year.
Further, by normalising drawing down from age 65, it will enhance superannuation’s role as a provider of retirement income. For older Australians, it will simply lead to more income – and hence better retirements.
Nick Callil and David Knox have combined experience of over 75 years as actuaries and advisors to a range of leading superannuation funds and are co-authors of 'It's time: here's how to turn superannuation into a retirement income system' published by the Actuaries Institute April 2026.