Default Dividend: How a default retirement product can help Australians retire with confidence
REPORT

Default Dividend: How a default retirement product can help Australians retire with confidence

clock

26.02.2024 - 08:30

Superannuation

A new study conducted by economics firm Mandala examines the minimum standards for a default retirement income product for Australians in retirement, and how many are likely to use and benefit from such a product. Similar to the accumulation phase, a default product will not be appropriate for everyone. However, as of 2023 there are 1.4 million Australians that are likely to use and benefit from a default retirement product. This could grow by 1.9 million to 3.3 million Australians by 2040. For these Australians, a default product will provide them with a safety net that improves financial outcomes in retirement. This study provides a guiding framework for designing a default retirement income product for Australia’s superannuation system.


Australia’s maturing superannuation system warrants a retirement phase solution that benefits its members

Over the last three decades, Australia has developed a world class retirement income system. This includes a superannuation system that has accumulated more than $3.5 trillion in savings since the early 1990s. This has been underpinned by the Superannuation Guarantee (SG), preservation of these savings until 55 to 60 years of age, and strong fund performance that has delivered 8 per cent returns over the past decade. These strong settings have placed Australia 6th on the Global Pension Index (GPI) as of 2022.

portableText image


As Australia’s superannuation system matures, there are a growing number of Australians moving into retirement with large superannuation balances. The typical Australian retiring in the next three decades could have a balance of up to $500,000 (2023 dollars) by the time they can access their superannuation savings. With this structural change imminent, there is a need for Australia to evolve its current policy architecture to reflect the importance of the retirement phase of the superannuation system, and support those transitioning into retirement.

Without the right retirement product, Australians moving into retirement could be losing out on thousands of their savings. For example, Australians that continue to hold an accumulation phase account will be subjected to earnings tax – costing the typical Australian that is eligible to retire up to $1,900 in a year. Similarly, Australians that opt to withdraw their savings in a lump sum could be missing out on up to $3,800 of additional earnings in a year if they had a retirement product invested in a balanced asset allocation.

While advice can be an important part of the solution, policy settings could be improved by introducing a default retirement product. Given this, there is a need to identify how the Government and industry should design a default retirement product, and who is likely to use and benefit from it.

Default retirement products need to be flexible, have an appropriate asset allocation and minimum safeguards to protect the interests of Australians

To protect the interests of Australians transitioning into retirement, a default retirement product needs to be flexible, have an appropriate asset allocation and minimum safeguards.

Retirement products have an inherent trade-off between flexibility and longevity risk. Account-based pensions provide members with significant flexibility and choice, however this is at the cost of managing longevity risk. On the other hand, annuities provide protection against longevity risk, but provide very limited choice and flexibility to members. While a default retirement product follows a generalist approach, it may not address individualised needs for all retirees. Therefore, it is critical for a default product to be reversible, ensuring Australians maintain control over their savings and retirement.

High levels of flexibility come at the expense of traditional longevity protection offered by products such as annuities. Default retirement products should have appropriate asset allocation that helps to manage risks associated with longevity and inflation. This will require exposure to growth asset categories such as equities, property and infrastructure.

Default products need to also be complemented with minimum safeguards focused on protecting the interests of Australians in retirement. At a minimum, retirement products that are eligible for defaulting should be (i) performance tested and included in a comparison tool; (ii) have low fees; and (iii) be standardised to ensure easy comparability.

The introduction of a default retirement product can be government-led, industry-led, or collaboration between the two.

portableText image


By 2040, there could be 3.3 million retired Australians using and benefiting from a default retirement income product

Just like the accumulation phase, a default product will not be appropriate for everyone. However, as of 2023 there are 1.4 million Australians that are likely to use and benefit from a default retirement product.

portableText image

This could grow by 1.9 million to 3.3 million Australians by 2040. For these Australians, a default product will provide them with a safety net that improves financial outcomes in retirement.

portableText image

Next steps in superannuation policy reform

Reforming the existing policy settings and enabling these Australians to benefit from a default retirement product requires a three-phased approach:

1) Update legislative and regulatory frameworks to define the core objective of superannuation.

2) Establish frameworks and regulatory requirements for the default retirement product.

3) Evolve industry standards to introduce default retirement products for all Australians.


Download the full report here.

Read our latest posts

Critical Minerals Strategic Reserve Design
Critical mineralsEnergy transitionGovernment

Critical Minerals Strategic Reserve Design

Mandala's latest report for the Association of Mining and Exploration Companies (AMEC) sets out an industry-informed approach to implementing Australia’s Critical Minerals Strategic Reserve, with a focus on rare earths critical to national security and the energy transition. Bringing together 10 Australian rare earth developers, and drawing on international precedents and economic analysis, the report recommends a commercially viable and fiscally sustainable model to support new investment in Australia’s rare earths sector while managing risk to taxpayers.

12 Jan, 2026

The Value of Online Payments to New Zealand Businesses
FinTechFinancial ServicesTechnology

The Value of Online Payments to New Zealand Businesses

Mandala partnered with Stripe on a research report based on the findings of a survey of 200 New Zealand businesses around the value of online payments and opportunities for future innovation.

18 Dec, 2025

Optimising Australia’s Specialist Investment Vehicles for the Net Zero Journey
Net ZeroClimateGovernmentEnergy transition

Optimising Australia’s Specialist Investment Vehicles for the Net Zero Journey

Mandala, in partnership with IGCC, explores how Australia’s Specialist Investment Vehicles (SIVs) are deploying public capital to accelerate the net zero transition. The report examines the current funding landscape, identifies structural challenges that limit the effectiveness of public investment, and sets out a pathway to evolve the SIV system into a more coordinated, capital-led model aligned with national priorities.

10 Dec, 2025

$160 billion and counting: The cost of Commonwealth regulatory complexity
Productivity

$160 billion and counting: The cost of Commonwealth regulatory complexity

Our latest research for the Australian Institute of Company Directors (AICD) reveals Australia’s growing regulatory burden. The cost to businesses of complying with federal regulation has risen to $160 billion (5.8 per cent of GDP), up from $65 billion (4.2 per cent of GDP) in 2013. More complex laws are contributing to the increase in costs and redirecting business resources away from growth and innovation. Board time on compliance has doubled from 24 percent to 55 percent in 10 years, while the external legal spend now sits at $16bn up from $6bn in 2010. While the UK, EU, Canada, New Zealand and US are simplifying regulation to drive growth, Australia risks falling further behind without taking immediate policy action.

2 Dec, 2025

Loading...