IGR predicts drawdowns will be major source of retirement income

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Drawdowns from superannuation are projected to increase to almost six per cent of gross domestic product (GDP) by 2065–66, according to the latest Intergeneration Report released on Monday.

 

Drawdowns from superannuation are projected to increase to almost six per cent of gross domestic product (GDP) by 2065–66, according to the latest Intergeneration Report released on Monday.

The report states that drawing down accumulated superannuation will become an increasingly significant part of retirement income for many retirees and is estimated to increase from 2.5 per cent of GDP in 2025–26 to 5.8 per cent of GDP in 2065–66.

The proportion of people with accounts in the retirement phase, from which they are drawing a superannuation pension, will increase 13.9 percentage points (from 11.6 per cent in 2025–26 to 25.5 per cent in 2065–66).

By comparison, the proportion of the population over 65 will increase by only seven percentage points (from 17.8 per cent to 24.8 per cent).

“The purpose of the superannuation system is to ensure a dignified retirement. A continued policy focus that encourages accumulated superannuation savings to be drawn on effectively during retirement will help to fulfill the goal of supplementing the Age Pension as a source of retirement income and drive higher living standards in retirement,” the report stated.

“The superannuation system will support a higher standard of living in retirement and reduce reliance on the Age Pension. Growing balances will result in superannuation becoming the primary source of retirement income for many retirees.”

The report also noted that many recent retirees retain substantial superannuation balances at the end of their lives for multiple reasons, including complexities of navigating the superannuation system, the fear of exhausting savings and the “nest egg” framing of superannuation.

The median superannuation balance for people aged 65 and over in the year before death in 2022–23 was $76,000, with around a quarter of balances exceeding $250,000.

“The Government is progressing reforms to support retirees make better use of their superannuation savings and strengthen the role of superannuation as a source of retirement income as the system matures,” it said.

“Over time, this is expected to improve living standards in retirement. By encouraging retirees to draw on their superannuation savings in retirement, the reforms help ensure that the benefits earned during working lives, and the tax concessions that support them, flow to the targeted generation.”

The IGR also revealed that balances at retirement will continue increasing as the system matures. Between 2014 and 2024, the median superannuation balance for individuals aged 65–69 rose 77 per cent, from $115,000 to $204,000 in nominal terms. By the end of the medium term, this is projected to approach $450,000.

This reflects returns on superannuation balances and a growing number of individuals who can retire having benefited from compulsory superannuation over a significant portion of their working lives.

Furthermore, superannuation tax concessions as a proportion of GDP are projected to increase from around 1.7 per cent in 2025–26 to 2.7 per cent in 2065–66, driven by earnings tax concessions. The value of revenue forgone from superannuation tax concessions is projected to overtake expenditure on the Age Pension in the late 2030s.

As superannuation assets are assumed to grow faster than GDP growth, earnings concessions are projected to increase as a share of GDP in the long term, rising from around 0.9 per cent of GDP in 2025–26 to 1.7 per cent of GDP in 2065–66. In comparison, contributions concessions (such as employer contributions and voluntary pre-tax contributions) represent a more stable share of GDP. They are driven by the same factors that drive Australia’s GDP, wage growth and the size of the workforce.

Financial advice will become more critical, complex

David Lane, Head of Wealth Advisory at Focus Partners Australia said the IGR highlights a future where Australians are living longer, retirement is lasting longer, and financial decisions are becoming increasingly complex.

“With life expectancy projected to reach 89.5 years for women and 86.1 years for men by 2065–66, and the number of Australians aged 85 and over expected to triple, the importance of proactive financial planning has never been greater,” Lane said.

“Qualified financial advisers play a critical role in helping Australians navigate this complexity through integrated advice covering superannuation, investments, tax, retirement income, risk management, estate planning and succession strategies. As longevity increases, the value of holistic financial advice becomes more important than ever.”

Lane said the report also highlights the growing divide between the wealth and opportunities of our older and younger generations.

“Due in part to the strength of superannuation, and the growth in wealth, the report predicts that the proportion of older Australians receiving an Age Pension or income support payment will fall from 66 per cent currently to 52 per cent by 2066. This will lead to a projected decline in Government spending on the Age and Service Pensions from 2.3 per cent of GDP to 1.8 per cent of GDP by 2066,” he said.

“Wealth accumulation is shaped by factors such as home ownership, investment strategies, and superannuation contributions. However, younger generations face new challenges, including slower wealth growth and barriers to entering the property market. As a result, tailored financial advice is essential to help individuals make informed decisions, optimise their savings, and build a secure financial foundation. Many families have become more active in planning for wealth transfer during life, rather than leaving large estates, and this trend is likely to continue to be more prominent.”

Blake Briggs, CEO of the Financial Services Council, said the report contains the good news that Australians are living longer and this underlines the importance of a retirement system that works to provide Australians with an adequate and dignified retirement.

“The other piece of good news is that Australia’s superannuation system will deliver for Australians in terms of higher balances in retirement and a lower call on Commonwealth aged pension spending as a percentage of GDP.”

“However, the report acknowledges that a key driver of intergenerational inequity currently is the fact that young Australians are shut out of the housing market. The report shows home ownership among households aged 25-29 has fallen 17 per cent over the past four decades, with around 250,000 fewer young households owning a home than if 1981 ownership rates had been maintained.”

He added the IGR also makes clear that Australia faces significant long term economic challenges, including slower economic and population growth, an ageing population and continued weak productivity growth which will make it harder to sustain rising living standards and meet the growing fiscal costs of an ageing population.

“Governments will need to tackle the housing and economic challenges through reforms that support investment, productivity, and economic growth. This is key to maintaining public confidence, including preventing superannuation being identified as the solution to Australia’s economic challenges,” he said.

“It is important to recognise, however, that the report demonstrates that Australia’s superannuation system is playing its important role by supporting higher retirement incomes and reducing pressure on future generations.”

 

 

 

By: Keeli Cambourne | 23 September 2026 | smsfadviser.com

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