Have annuities quietly become "relevant" under the Best Interest Duty?

In recent years, lifetime annuities have sat at the margins of financial advice - niche, complex to advise on, and often left on the periphery. Less than 2% of superannuation reaching the retirement phase goes into lifetime income products, including annuities.

Not rejected outright or debated intensely. Just... not central.

But that environment appears to be changing.

Across Australia, superannuation funds, platforms, and insurers are increasingly introducing annuities (used here as shorthand for lifetime income products) into their retirement offerings. What was once niche is becoming more visible, more accessible, and a more prominent element of the system itself. In several of Treasury's new Best Practice Principles for superannuation retirement solutions, 'lifetime income products' are placed ahead of account based pensions - a subtle but telling signal of their intended role in the system.

This raises an important and largely unspoken question:

At what point does a product class move from "optional" to one that must be considered relevant under S961B Best Interests Duty?

From peripheral to present

Historically, annuities have been easy to exclude.

They were:

• limited in availability
• often seen as poor value due to low interest rates
• rarely requested by clients
• difficult to compare
• and often absent from standard advice frameworks

In that context, omitting them from written advice was not unusual and was often defensible.

Today, that context is shifting.

More than a dozen providers now offer lifetime income products (annuities) across platforms and superannuation funds, with several large funds integrating them into retirement solutions or actively developing offerings. Policy settings, including the Retirement Income Covenant and Best Practice Principles, are encouraging funds to consider how members can draw sustainable income over time, with longevity protection and enhanced means-test incentives as part of that conversation.

As availability increases and institutional support grows, the classification of these products as "peripheral" becomes harder to sustain.

A profession without a settled view

Conversations with approximately 50 advisers across Australia suggest that the profession has not yet formed a consistent position on lifetime income streams.

Instead, three broad perspectives emerge.

Some advisers are supportive particularly where longevity protection, Age Pension optimisation, or behavioural discipline are key considerations.

Others are open but cautious. They recognise the potential value of guaranteed income, but express difficulty in comparing products, understanding structural differences, and explaining trade-offs to clients with confidence.

A third group remains sceptical, citing concerns about relevance to wealthy or younger clients, as well as irreversibility and the risk of client regret, particularly where future capital access and estate flexibility are prioritised.

What is notable is not disagreement itself, but the absence of a shared framework.

Advisers are not uniformly rejecting lifetime income streams. But nor are they consistently equipped to assess them.

When complexity meets obligation

This fragmentation may have had limited consequences when lifetime products were viewed as optional.

But if they are increasingly viewed as a relevant class of financial product, the implications change materially.

Under the best interests duty, relevance is not determined by adviser preference, familiarity or ease of implementation. It is shaped by s961B(2) of the Corporations Act, which requires advisers to identify the subject matter of the advice sought, including what is implicit, for

example, a client who wants to avoid running out of money in retirement, even if they have not asked for a specific product type. It also requires advisers to conduct a reasonable investigation of products that would "reasonably be considered as relevant to advice on that subject matter".

If lifetime income streams now meet that threshold due to their availability, policy support, and potential role in managing longevity risk then the standard shifts.

The question shifts from:

"Do I use lifetime annuities?"

to:

"Can I demonstrate that I have considered them appropriately?"

As Brett Walker, compliance consultant and founder of SMART Compliance, notes:

"If a product class is widely available and relevant to client outcomes, I suspect the regulatory expectation shifts. Advisers may need to demonstrate why it has not been considered, or if considered, why it has been discounted and what the client is giving up, not simply that it is outside their general area of expertise - even if clients haven't requested it."

The real barrier is not reluctance - it's how we evaluate these decisions

The challenge is not simply a reluctance to use annuities, but the absence of a shared and consistent way to evaluate them within existing advice processes.

Lifetime income products introduce trade-offs that are fundamentally different from accumulation-phase investments:

• certainty versus flexibility
• income for life versus access to capital
• protection against longevity versus irreversibility of decisions

These are not easily reduced to a single metric that can be compared with an account-based pension.

In addition:

• product structures vary significantly
• comparability becomes inherently complex
• modelling tools are often underdeveloped in this area, and
• projections are sensitive to assumptions about lifespan, markets, and behaviour

Advisers must contend with the reality that many of these decisions are difficult, if not impossible, to unwind once a client has implemented a recommendation.

As one adviser observed:

"The complexity makes it difficult to make confident assessments... I need a high degree of confidence when making a recommendation that will be difficult if not impossible for the client to unwind."

This is not just about products. It is about how advisers are equipped to make and defend recommendations.

A gap between expectation and capability

What emerges is a potential gap between regulatory expectations and what advisers are able to do:

• Expectation: that advisers consider all relevant strategies and products
• Capability: a lack of frameworks for evaluating and comparing lifetime income solutions with each other and with account-based superannuation.

In many areas of advice, gaps such as these are bridged by established methodologies:

• asset allocation frameworks
• risk profiling tools
• insurance quote comparison tools.

In the case of lifetime income streams, no equivalent structure has clearly yet emerged.

A question the industry may need to confront

Annuities have long been positioned as a unique tool - mainly for risk averse clients but perhaps unnecessary for many others.

But the conditions that once made them easy to exclude are changing.

If lifetime income streams are now sufficiently available, dynamic, visible, and relevant within the retirement system, then the industry may need to ask:

Are they still optional to include in advice or are they becoming unavoidable?

And if the latter is true, a second question follows:

How can advisers demonstrate that they have assessed lifetime income options in a way that is consistent, defensible, and aligned with client outcomes?

Because without that structure, the issue may not remain theoretical for long.