The Australian superannuation system stands as a global titan of asset accumulation and a testament to the legislative foresight of the early 1990s. With assets now exceeding $4.3 trillion and representing approximately 160% of the nation’s GDP, the system has successfully enforced a culture of savings that has created a deep pool of national capital.
However, as the system enters its fourth decade, it faces a critical maturation crisis that threatens to undermine its fundamental social purpose. The accumulation phase has been executed with ruthless efficiency, yet the decumulation phase, the complex process of converting those assets into a reliable income stream, remains structurally immature and culturally neglected.
The release of the “2025 Retirement Income Covenant Pulse Check” by APRA and ASIC serves as a watershed moment for the industry. It provides a damning empirical validation of a long-held suspicion, confirming that Australian superannuation funds are excellent at taking money in but deeply ambivalent about paying it out.
The regulators’ assessment that the industry’s progress has been slow and merely incremental reveals a systemic inertia. This leaves millions of retirees navigating the most complex financial transition of their lives with inadequate support.
We are witnessing an industry suffering from a deep-seated accumulation bias, where the metrics of success are antithetical to the objective of the decumulation phase. The fear of running out is driving a paradox of thrift among the elderly, converting the superannuation system from a consumption-smoothing vehicle into a tax-advantaged inheritance scheme.
Compliance theatre
The introduction of the “Retirement Income Covenant” in 2022 was intended to be the legislative mechanism that forced the superannuation industry to pivot its focus from accumulation to decumulation. The Covenant imposed a positive obligation on trustees to formulate strategies to assist members in maximising retirement income while managing the risks of longevity and inflation.
Three years into this regime, the 2025 review reveals a stark disparity between legislative intent and industrial reality. The findings were unequivocal in showing that the industry has failed to embrace the spirit of the reform. While compliance documents have been filed, the operational transformation required to deliver on these strategies has stalled.
The core critique centres on the concept of box-ticking. Many trustees appear to have viewed the Covenant as a requirement to produce a document rather than a mandate to change their business model. This bureaucratic approach has resulted in strategies that exist on paper but do not translate into the member experience.
The regulators noted that while almost every fund claims to have improved its understanding of members, few can demonstrate whether this has actually led to better outcomes for retirees. This disconnect between activity and outcome is the defining characteristic of the current regulatory landscape.
One of the most incisive criticisms in the 2025 report is the industry’s reliance on activity-based metrics to gauge success. When asked how they measure the effectiveness of their retirement income strategies, many funds cited metrics such as website visits, click-through rates on newsletters, or attendance numbers at retirement seminars.
These are metrics of marketing engagement rather than metrics of retirement well-being. True measures of success in the decumulation phase are difficult to capture but essential. They would include metrics such as the percentage of members drawing down above the minimum rates or the replacement rate of pre-retirement income achieved by members. By focusing on busywork, funds are obscuring their lack of progress.
The inequality gap
Australia is facing a retirement cliff where the large “Baby Boomer” cohort is exiting the workforce. Over the next decade, an estimated 2.5 million Australians will enter retirement. This is not merely a continuation of past trends but a fundamental shift in the composition of the superannuation system’s membership.
Currently, over 1.5-million-member accounts are already in the retirement phase, representing approximately $575 billion in member assets. Projections suggest that retirement assets will explode to $3.6 trillion by 2044.
While the system is finally delivering on its promise for middle-income earners, with super incomes for the middle wealth quintile doubling in real terms, the complexity of managing that wealth has increased. A retiree with a substantial balance must manage a complex decumulation strategy over thirty years.
The system’s failure to adapt to this wealth management phase for the mass market is its current Achilles’ heel. Data reveals profound shifts like retirement that super funds have failed to address, specifically the collapse in early retirement and the extension of working life, which creates a long transition phase.
The data paints a picture of a bifurcated retirement system. On one tier are homeowners who retire with significant wealth and use superannuation as a top-up. On the second tier are renters who retire with a fraction of that wealth and for whom superannuation is the only buffer against poverty.
This divide is the defining class struggle of the modern Australian retirement system. Despite this stark difference in risk profile, super funds typically place both a renter and a homeowner in the same default investment option and offer them the same product.
The transition from accumulation to decumulation is not just a financial transaction but a profound psychological pivot. For forty years, Australian workers have been conditioned to save. Upon retirement, the system abruptly asks them to reverse this conditioning. This shift triggers powerful loss aversion biases. The dominant emotional state of the Australian retiree is the “Fear of Running Out.”
Retirees rationally choose the path of extreme caution. They minimise spending to the minimum drawdown rates mandated by the government. This behaviour is a form of self-insurance, hoarding capital to insure against the risk of living too long. The consequence is a paradox of thrift that leads to a lower quality of life. Retirees are asset-rich but consumption-poor, often living on less than they need to because they are terrified of future costs, particularly aged care.
The primary vehicle for retirement income in Australia remains the “Account-Based Pension.” It is, in essence, an accumulation account with a tap attached. While it offers flexibility, it offers zero protection against longevity risk. The dominance of this product is a result of regulatory history and industry convenience. It is the path of least resistance for funds, allowing them to keep assets in the same investment pools while generating fees. The “2025 Pulse Check” implies that many funds are content with this status quo because it is easy, even if it is suboptimal for the member’s risk profile.
The uptake of lifetime pension products has remained low. Major funds like TelstraSuper have even retreated from manufacturing their own lifetime products, signalling the difficulty of managing actuarial risks within a standalone fund. The barrier to uptake is not just supply but the framing of demand. Members view annuities as losing control of their money because funds have failed to educate them that the cost of an annuity is the price of insuring their income.
Confident retirees: Need of the hour
The failure of Australian super funds to support retirees is not a failure of investment performance but a failure of purpose. The industry has perfected the art of building wealth but remains an amateur at the art of dispensing it.
The path forward requires a structural shift toward smart retirement pathways, where funds guide members through semi-automated solutions that combine flexibility with longevity protection. This requires legislative support to unlock data sharing and a cultural revolution within funds to prioritise income delivered over assets held.
If the industry fails to make this pivot, the superannuation system risks losing its social license. It will be seen not as a pillar of national retirement security but as a tax haven for the wealthy and a source of anxiety for the rest. We must recognise that the system’s goal is to create the most confident retirees. Achieving this requires the industry to stop counting its billions and start making those billions count for the people who own them.