CIPRs Explained Simply: Building a Reliable Retirement Income Stream

For such a critical and long-dreamed of part of life, investing in retirement was woefully underserviced until recently. Superannuation funds focused heavily on the accumulation stage, relegating pension phase to a side thought. As Australians have come to live longer, and more of the baby boomers have retired – one of the largest generation cohorts, it’s become patently clear that retirement investment strategies need more nuance to manage the unique challenges of retirement.

Only three years back, the Retirement Income Covenant was enshrined into law with the aim to support retirees in maximising their income, better manage risks and provide flexible access to funds. Part of the legislation required superannuation funds and life insurance companies to assist members with retirement needs and income.

It’s still slow going, but retirees are increasingly finding more options available to them, and over time, more sophisticated product offerings. APRA is currently in consultation on setting capital rules for longevity products in the hope of broadening the options available and addressing a range of gaps. For those interested, you can read the paper and submit your thoughts by 17 December here.

While investors can hope to see continued improvements in the coming years, there are still a range of comprehensive income products for retirement (CIPRs) available and you can think about your retirement strategy in a range of ways to meet the challenges of investing in this phase.

The Unique Challenges of Retirement Investing

Ahead of retiring, investors need to consider a range of things – their lifestyle plans in retirement, the annual income needed to account for this and emergencies and what they might need to invest to have enough money for retirement.

As a basic guide, the ASFA Retirement Standard June 2025 suggested that for a comfortable retirement, a single person might need an annual income of $53,289 and savings at retirement at age 67 of $595,000. For a couple, the annual income was $75,319 and savings at age 67 of $690,000. It assumes outright home ownership and factors medical expenses, some travel and other needs.

For some, the lifestyle suggested might sound luxurious, for others, it might seem sparse. Either way, it’s a starting point to think about lifestyle and expenses at a point where you’ve retired and there’s no additional funds coming in (unless you choose to continue some form of work post retirement).

All investors face risks such as market risk, volatility risks or counterpart risks, but retirees also face a few additional unique risks.

Three key ones include:

1) Longevity risk: the risk of outliving your savings.

2) Sequencing risk: where poor market returns early in retirement or when you need to withdraw money result in lowered savings.

3) Inflation risk: where increases in the cost-of-living diminishes your ability to live your desired lifestyle on your level of retirement income.

The Retirement Income Covenant aimed to help retirees with more certainty around their strategy and retirement income, though recent data suggests superannuation funds have been inconsistent in their implementation.

CIPRs: What are Your Options?

CIPRs should offer steady income and flexibility, while helping retirees to manage longevity risks. Some can be used alongside the government age pension if you are eligible.

Some of the current options include:

Traditional Lifetime Annuities

These provide guaranteed income for a set number of years or for the rest of your life. You choose the fixed payment amount and the terms at the time of purchase. Typically, they cannot be adjusted once purchased. Payments may not keep up with inflation, although some versions include inflation-adjustment features. Things to bear in mind: these products offer guaranteed income but are not flexible.

Investment-Linked Annuities

These also provide guaranteed income payments, but the payment amount reflects the performance of the investment option they’re linked to. Income may grow if investments perform well, but can also decrease during market downturns. The underlying investments generally still include growth assets. Things to bear in mind: these can be more flexible and may reduce longevity risk, but you also face the risk of lower income in downturns.

Lifetime Pensions

A lifetime pension provides regular income payments for life and helps offset longevity risk. It can be used alongside other retirement products, and some versions adjust annually based on investment performance. After a member passes away, ongoing income or a lump sum may be paid to a chosen beneficiary. Things to bear in mind: this option offers simple, guaranteed income for life, though typically you cannot withdraw a lump sum. There may also be inflation risks and limited investment choice.

Account-Based Pensions

This option sits within superannuation. You transfer some of your super from the accumulation phase into an account-based pension, which pays regular income that you choose, with the ability to withdraw extra if needed. The balance remains invested in an investment option you select and can change over time. Payments continue only while funds remain in the account, which creates longevity risk. Things to bear in mind: it is flexible but comes with higher longevity and investment risk, especially in market downturns.

Government Home Equity Access Scheme

Although not a traditional income stream, this scheme helps retirees supplement income by accessing equity in their home through a government loan. It allows eligible retirees to top up their retirement income by up to 150% of the maximum qualifying pension rate. Things to bear in mind: it is a loan, so repayment (usually from the sale proceeds of the property) and the impact of compounding interest need to be considered. It also has specific eligibility criteria, so research is important.

Whichever approach you take to income, there are a few additional things to remember.

1) Pension withdrawal minimums – you must withdraw a minimum amount from your pension account each year. This is a percentage of the account balance and varies based on age, with a lower percentage required to be withdrawn at 65 years compared to over 95 years. Visit the Australian Tax Office for more detail.

2) Transfer balance caps – there is a maximum amount you can transfer into the retirement phase from the accumulation phase of super – if the total amount in your retirement accounts exceeds the cap, you’ll need to either withdraw the excess as a lump sum or transfer it back into the accumulation phase. The cap for 2025-26 is $2 million. Earnings in the retirement phase are tax free. The transfer cap is indexed to inflation.

Retirement outside of retail superannuation funds

Sophisticated investors might also consider retirement strategies outside of retail super funds, using self-managed super funds (SMSFs) or their general investment portfolio by using investments specifically tailored for income needs or direct investments with an income slant.

Individually managed accounts (IMAs) and Separately managed accounts (SMAs) have become popular in recent years for that reason because you can select strategies tailored for income needs with growth, there’s some flexibility in terms of your individual needs and you also have beneficial tax ownership of the assets, that is, access to franking credits or the ability to adjust investments personally for your needs and objectives.

These vehicles can offer efficiencies in terms of automation, lower transaction costs and flexibility which may make them more cost effective for some investors. On the flip side, they can be a more expensive option for those using investments like passive indices which might be more cheaply accessed via ETFs.

Some examples include Income Asset Management Managed Discretionary Accounts or FIIG Managed Income Portfolio Service

Income Products to Watch

Those looking at income focused investments have a range of options on the market. There are a range of active and passive options that aim to offer investors regular income, be it via dividends or coupons.

If you are retired and looking at these products, you might want to look at the fund documentation to see what types of investors they are suitable for. Not all income products are suitable for retirees so check the objectives and strategy for investment and how frequently you are likely to receive distributions.

A few examples of managed funds and ETFs in Investment Markets’ database of income options are:

Betashares Australian Dividend Harvester Fund (Managed Fund) (ASX: HVST) JPMorgan Income Active ETF (Managed Fund) (Hedged) (Cboe: JPIE) which invests across global debt markets for capital appreciation and regular income. Plato Global Shares Income Fund which aims to offer income through global equity dividend investing.
RAM Australia Credit Fund which aims to offer stable income via investments in Australian residential mortgage-backed securities.

Retiring with More Certainty

As the market continues to evolve and legislation broadens the options for retirees, certainty over retirement income and the ability to manage longevity, sequencing and inflationary risks should increase.

Until then, investors still have options open to them in existing CIPRs and other available income funds. It’s important to take the time to think through lifestyle, income needs, flexibility requirements alongside minimum drawdowns while researching which income products will be right for you.

The other thing to remember is that you could combine some options where that might offer better outcomes for you rather than just selecting one option.

If you choose to seek expert advice – and this can be invaluable in helping you set your strategy and find the right investments, be conscious of checking qualifications and experience, particularly when it comes to offering advice on retirement.

Funds Mentioned

Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.