Australians don’t understand retirement — here’s what needs to change
Last updated on 13 March 2024
Key points:
- While most Australians approaching retirement expect to finish working at 67 — at which point they are eligible for the age pension, one-third have accessed their super by 63 and one in four are still working in their early 70s
- The median balance at retirement was $200,000, the Super Members Council expects the median earning 30-year-old to retire with $500,000
- Two-thirds of retirees draw down on their super more than the minimum — in fact, on average, they draw down 40 percent more than they are required to, even excluding lump sum withdrawals
Australians spend all their super in retirement, draw down on super more than the minimum required, find retirement and super overly complex, along with craving more information from their funds on how to navigate the system, according to new research.
The Super Members Council retirement income submission to treasury made a series of recommendations to simplify the system for members while ensuring it can accommodate the flexibility and sometimes differing needs of Australia’s building wave of retirees.
SMC Chief Executive Misha Schubert said super, in combination with the Age Pension, has given millions a better life in retirement. However, while some Australians get to choose their retirement date, others end up leaving paid work earlier due to ill health, caring duties and unemployment.
“Retirement is changing and super in retirement needs to change with it,” Ms Schubert said.
“There’s a huge appetite for high-quality, low-cost and no-cost advice to help people plan wisely for retirement.
“We want to ensure retirement is simple, easy and flexible. People should be able to have confidence that they are in a good product that’s right for them.”
The retirement income submission detailed that retirement is no longer a single point in time; rather it’s become nonlinear, with many members moving in and out of the workforce, either choosing to carry on working in some capacity or being forced to do so due to lower levels of retirement savings.
Research from the SMC found that more than half of the retirees who leave portions of super in the accumulation phase do so deliberately, to be used as a financial backstop or because they have other sources of income rather than due to a lack of engagement. They also have lower balances on average.
“After a lifetime of building savings, people should be free to spend their money how they choose in retirement,” Ms Schubert added.
“We are on the cusp of a seismic change to retirement and we will contribute thoughtfully to this important ongoing discussion, which must be based on a sound evidence base. Our submission busts the longstanding myth that retirees are not spending their super.”
Combining exclusive consumer research, deidentified super fund data and analysis of publicly available information, the submission found that contrary to prevailing beliefs retirees were not underspending in retirement.
In fact, two in three people are drawing income from their super above the minimum required in retirement and 90 percent of men and 80 percent of women have no super left when they reach their life-expectancy age.
While retirees’ stated ambition is to retire at 67, it doesn’t always pan out that way — the data shows that about a third have accessed their super at 63 and about 25 percent still work into their 70s.
Consumer research also shows members have a limited understanding about how to get the most out of super in retirement with less than half confident they understand account-based pensions and annuities.
Australians approaching retirement want more information and advice, with 73 percent of members stating they would trust advice from their super funds if it were specifically tailored to their circumstances.
Financial advice remains the missing piece in the retirement puzzle and to help members the agreed reforms to financial advice should be legislated this year.
The SMC submission concluded that the government should take further action to consult and legislate the retirement and super component of the financial advice reform package before the end of this year.
Similarly, the SMC believes that it should be easier for members to switch to retirement products, along with ending the current ban on being able to add contributions to a retirement-phase super account.
In addition, the submission called for the government to notify super funds about their members’ eligibility for pensions and other government supports, with member permission, so members can be given tailored information on how to maximise their retirement income.
The SMC advocated for a comprehensive retirement test to be developed that measures a broad set of factors, including investment performance, flexibility to access funds in retirement and people to have control over the level of risk they want.
Along with these recommendations, the SMC noted that the government should not mandate the use of annuities for members or cohorts of members. Trustees are best placed to create investment strategies for their members, according to the council.
Do you agree or disagree with the SMC? Let the team at Your Retirement Living know and subscribe to the newsletter for more information, news and industry updates.
Related content: