Australians’ retirement confidence continues to seesaw

New research has found cost pressures are weakening Australians’ outlook for their golden years even as the superannuation industry grapples with the issue of longevity risk and retirement income.

According to State Street Global Advisors’ Global Retirement Reality Report, around 46 per cent of Australians are not optimistic they will be financially prepared by the time they plan to stop working, up from 41 per cent in 2022.

Similarly, some 50 per cent are not confident they will be able to retire when they plan to, compared to 40 per cent the previous year.

The global survey of over 4,200 people, including more than 600 from Australia, observed that “many of the measures of confidence appeared to have weakened rather than strengthened” despite a dramatic reversal in markets in 2023.

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Among the top factors affecting Australians’ retirement decision was inflation and cost of living (73 per cent), followed by mortgage debt or rent and housing costs (38 per cent) and medical expenses (35 per cent).

“These three were selected more often than factors like having spare money for savings, the complexity of the superannuation and pension system and lack of trust in super,” the report stated.

“Clearly confidence in retirement is a function of much more than simple investment returns.”

Still, most respondents believe Australia is heading in the right direction on retirement incomes on both the policy and industry fronts, with the survey finding broad support for the principles in the Retirement Income Covenant.

Around 42 per cent said they would prefer flexible access to part of their retirement savings in the early years of retirement and to use the remaining part for a stable income in their later years, loosely reflecting the principles of the covenant.

However, the report noted: “[P]lenty of respondents are attracted to alternate models, and so it is important that trustees keep member involvement at the centre of their retirement incomes strategy.”

It highlighted two significant, and related, developments for retirement incomes in Australia last year, namely the Quality of Advice Review and Treasury’s discussion and consultation paper on the retirement phase of superannuation.

“These two releases are deliberately linked. It is hard to imagine a robust ecosystem for retirement incomes that doesn’t include affordable and accessible advice,” the report stated.

It noted that some 40 per cent of respondents were comfortable figuring it out themselves when it came to sustainably withdrawing savings in retirement while 37 per cent would seek out a financial adviser.

A less popular course of action, according to the survey, was more active guidance from super funds themselves.

“To be fair, the problem of retirement income is not one that superannuation funds can solve on their own. When we asked respondents about their understanding of ‘retirement income’, most selected a simple, holistic statement that equates retirement income to a regular paycheck,” it stated.

“This definition resonated more strongly than either an annuity or a drawdown plan, both of which are ‘products’ that a superannuation fund might offer.”

It highlighted the complexity of the Australian system, given the interaction of the age pension, super and healthcare, driving the need for advice and innovative products from super funds.

Just under half of respondents included the age pension in their top three sources of income in retirement. Under a third (29 per cent) had the age pension as one of their top two sources.

Last year, the 2023 Mercer CFA Institute Global Pension Index, which ranks 47 retirement systems and covers 64 per cent of the world’s population, gave Australia a B+ grade just behind the Netherlands, Iceland, Israel, and Denmark that received an A grade.

Per the index, Australia’s B+ grade, alongside Finland and Singapore, means it has a system with a sound structure and many good features, but falls short of a “first-class and robust retirement income system that delivers good benefits, is sustainable, and has a high level of integrity” of the top-ranked countries.