Pre-retirees are prioritising paying off mortgages ahead of retirement planning, suggesting cohorts based on debt liabilities should be considered, says Paul Sayer, chief operating officer REST.

The findings are based on member research carried out by REST.

“People are living longer and thinking about a longer investment horizon, but they want to pay that debt off first. Part of the answer may be to dial down their risk if there’s a fixed liability coming up. It comes back to understanding circumstances and liabilities better,” said Sayer.

He believes lifecycle investing based on age or balance-based cohorts tends to over-generalise risk appetites due to an incomplete picture of liabilities and lifestyles.

“Based on our surveys we try to pick up what people need for a comfortable lifestyle and learn from them… And we know are older members are putting their savings into mortgages,” said Sayer.

REST has already begun tailoring the way it communicates to members, by providing retirement income projections in annual balance statements. While there are no imminent plans to separate members into cohorts, it may be a future option if the fund can collect more granular information about members’ personal and financial circumstances.

“At the moment there’s not a cohort, we continue to look at it but we don’t have a drop dead date,” said Sayer. “This research suggests people have different needs, such as, does the person want to maximise that small amount balance, or have a liability they want to pay off with their super? How you find that debt piece out, I don’t know.”

Sayer added: “You need to be very careful to offer an option that’s suitable, and think smarter because members have different circumstances. You need to ask, ‘do you have enough information about their partner and circumstances, assets and liabilities?’”

REST has a five percent overall membership demographic of baby boomers, equating to about 100,000 members aged 55 to 65, with one default option. The vast majority of REST’s survey respondents said their number one ‘best investment strategy’ was paying off their mortgage. Sayer said this flagged future appetite for equity release products, such as reverse mortgages, along with annuities and aged care product options.

“We’re picking up a shift in interest in aged care products and we recognise these are important considerations, so we’ll need to address what the longevity products are out there.”

REST’s survey revealed the extent of the lack of confidence many baby boomers have about retiring with sufficient savings, with two thirds of the 1000 pre-retirees polled saying they will need to rely on the age pension, while fewer than 11 percent have balances greater than $400,000. A further 21 percent of members were unsure whether they would need to draw on the pension or not.

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