The Welshman joined the Reds from Swansea in 2012 for a fee of £15 million, but has struggled for form since the turn of the year and been displaced in the starting XI by Lucas Leiva.
But Hamann is adamant Allen can fight his way back into the first team next season and is confident that the former Swansea midfielder still has plenty more improving to do.
|7/4||Liverpool are 7/4 with BetVictor to finish in the top four next season
"He was absolutely outstanding for the first few months then he missed a couple of games, Lucas has come back in the team - who missed the early parts of the season through injury - and then he found it hard to get back into the team.
"But I think for the first year he's done ever so well and you've got to give him time, he's only young. He showed his potential, if anything he'll only get better and I think there's a lot to look forward to.
"If he adds skills to his game then I think he can play in various positions in the centre of midfield because he's a clever player, he's a very good passer of the ball, he spots danger and he's a team player.
"Now he needs to crack on and take his game to the next level, not only for Liverpool but also for Wales.
"He's at a top club now, he will have gained a lot of experience from that and I hope he can put that to good use for his club and country.
"I think you will see a lot more from him in the future because he is a terrific player."