How we look at retirement is due for government review, says REST Industry Super chief executive Damian Hill, as new research shows a generation of Baby Boomers grossly underprepared for the next phase.
“The government has certainly flagged that it wants to engage in that sort of conversation to paint that part. We’ve been very focused on the accumulation phase,” Hill tells IM Online.
In its latest white paper, The Journey Begins, REST gauged the sentiments of 1200 Australians approaching retirement, revealing a Baby Boomer generation that hasn’t saved enough and is revising its retirement views.
“Super was never – or was unlikely – to ever provide all the retirement funding for this generation, just because it’s only been around a bit over 20 years for most of them, and it was at a lot less than 9 per cent for the first of that.”
Figure 1. Which of the following best describes your view of superannuation?
Hill says it’s in retirees’ own interests to understand their options, despite the bad news they may have been receiving about their super balances over the last few years.
“A lot of retirees are still going to receive a significant amount from the social security system via the aged pension, whether it’s a part or full pension. If not immediately, it won’t be that many years down the track.”
Boomer needs underestimated
The survey revealed that the Baby Boomer generation, which began retiring last year, has underestimated the amount needed to retire comfortably. Of those surveyed, 35 per cent said they feel completely financially unprepared for retirement and only 14 per cent indicated they feel financially prepared.
For the younger Baby Boomers, though, there is still time to make changes in regards to savings patterns, says Hill. But he believes more people will be prepared to enter retirement with some level of debt and rely on part of their superannuation to pay off that debt. “That’s not universal, but it is a growing proportion.”
Figure 2. How are you funding your retirement?
Meanwhile, 70 per cent of respondents admit to not seeking financial advice, which gives scope for super funds to offer more in-depth advice.
“They’re going to be looking at the super funds to help them manage their cash flow, so I think there is going to be a greater need for advice,” says Hill.
There will still be a requirement for advice beyond the age of retirement, Hill adds.
“Depending on what that does, how the economy changes, it may also present different investment opportunities for super funds as well. But we need to observe those and think about those over the longer term.”
The survey also showed how demands on Baby Boomers have changed, with people having children later in life, and a third of unretired people over 50 accountable to financial dependants whose needs will impact retirement decisions.
Downing tools and family homes
Meanwhile, an increasing number of retirees are still loaded with debt and continuing to work in part-time arrangements. Hill expects people will be saving for longer and drawing down part of their pension in some way upon retirement.
“People’s views of what retirement will be are changing [and] a lot more are talking about winding down in some form or another. So whether that is part-time paid work, whether it’s even voluntary work, I think there’s going to be great capacity there,” says Hill.
“But it does point to the flexibility that’s going to be needed by employers in the labour market in order to retain those skills on a part-time basis.”
Figure 3. Do you intend to reduce your hours as you approach retirement?
Beyond increased flexibility in the labour market, housing is also likely to be impacted. Hill said half expressed a view that they would move house when they retire, with more than a quarter planning on downsizing.
“The family home is almost seen as the bequest or inheritance… If that translates to actual action, I think that is a change in society.”
While Hill found the sentiment surprising, he says he was also heartened to hear that people were planning to downsize.
“Australians love our housing and we have a lot tied up in our housing, and whether a big four or five bedroom house is still necessary when you’re retired – although for some it might be if they’ve still got the dependants living at home. But if you can get rid of them, get them to move out, then it’s probably a more productive use of housing assets for the economy.”
Hill says REST intends to extract findings of the research when it engages with government about educating super fund members about how their savings impact their retirement options.
Retirement is a significant issue among industry super funds, with some calling for more guidance and clearer requirements from government, and greater cooperation between funds in addressing the strength of the existing method of saving.