A surge of retirees is coming, and Australia needs to be better prepared. Over the next 40 years, the number of Australians over the age of 65 will more than double. As our savers turn into spenders, they’re redefining what retirement looks like and exposing frictions in our legacy system settings.
Australia’s ageing population is working longer and even re-entering the workforce after retirement – we are indeed seeing the great “unretirement”. More time in the superannuation system means higher-than-average balances and members that are engaging with their fund more frequently.
AustralianSuper has the privilege of listening to a growing number of members. We hear their stories, concerns and expectations. While moving into this important phase of life is deeply personal, and no one-size solution fits all, we are seeing a desire for a more dynamic and iterative transition to retirement.
Approaching retirement is a complicated time, with both financial and life decisions to make. Understanding the changing needs of Australians approaching and in retirement is critical. One thing that doesn’t change is that the biggest concern members have is how long their super will last.
Our research shows that one in every two pre-retirees worry they don’t have enough money to retire with, and three-quarters of members approaching retirement don’t know what they’ll do with their super when they get there. We’ve also spoken with many members who struggle with the difficulty of coordinating multiple income sources, including from work, super, government benefits or private savings. The fears and frustrations of a fragmented and inflexible system are real and widespread.
Building confidence
Australians work hard and deserve to feel confident about the next stage of their lives – confident to make choices about their future, to navigate the system, and to drop tools or log-off and enjoy a dignified retirement when the time is right.
AustralianSuper’s Retirement Confidence Study of more than 5000 Australians delves deeper into the cultural shift we’re seeing around how people define and feel about retirement. Only 46 per cent of Australians feel confident they will live well in retirement. The data reveals the strongest factors driving confidence are goal setting and planning (36 per cent), and financial literacy and behaviours (33 per cent). Health-related factors – social, mental and physical – have less of an impact.
The study also shows there is a gap between the expected and actual retirement age of Australians. While the planned retirement age tends to cluster around age milestones – 60, 65, or 70 – the reality is more varied. With Australians retiring both earlier or later than they expected, confidence wobbles, ebbs and flows. The insights emphasise the importance of providing Australians with different product options, and tailored guidance to suit such individual and evolving needs.
Ending the divide
Before and during retirement, members want to know how they can best use superannuation and other income sources to meet their needs, and they’re looking to their fund for guidance and direction. This presents an opportunity to develop a world-class “spending system” that is simple and member-centric.
The first step to achieving a more seamless member experience is to end the divide between contribution and drawdown phases. Currently, when a member opens a decumulation or retirement account, contributions cannot be made into that account. Allowing members to concurrently draw an income after they meet preservation rules and to continue making contributions will help them to maximise their retirement income.
For many, gone are the days of taking your super savings out in one lump sum. For the growing number of retirees who move fluidly between work and retirement, this flexibility would remove the complexity – and fees – associated with managing multiple accounts.
Income integration
Just as integrating the accumulation and retirement phases will simplify the experience for retirees, so too will integrating their three sources of income: the government Age Pension, superannuation, and private investments or savings. Without a holistic view of their entitlements and wealth, planning can be complex and burdensome for members.
Treasury’s Intergenerational Report published in 2023 predicts the primary source of retirement income for many future retirees will be superannuation, with the Age Pension continuing to play an important supplementary role. However, many don’t know if they’re eligible for the Age Pension; 56 per cent of eligible people delay applying, and these delays cause loss of income.
Whether due to uncertainty, lack of confidence in dealing with the application process, or reluctance to accept government benefits, these barriers may be overcome with the right guidance.
The Retirement Reality: Advice and the Age Pension whitepaper, published by Link Group in 2022, found that 72 per cent of respondents wanted their super fund to assist with their application for the Age Pension. Allowing super funds to assist, on the request of a member, with Age Pension eligibility assessments and applications, and managing their different sources of income, would go a long way to boosting confidence in retirement.
Consistency, data and guidance
As the system has grown and matured, so too has its complexity. One of the pain points for members is the inconsistency of industry jargon and the lack of plain language. Along with quality filtering of retirement products and enhanced education and engagement, standardisation of terminology across the industry would improve the effectiveness of product disclosure and support member understanding.
Of course, to deliver services effectively, funds need access to a more complete view of their members’ financial positions. Data is the missing piece of the puzzle for superannuation funds. We’re heartened that members already trust their fund with their money and personal information. An effective data-sharing model already exists between super funds and the Australian Taxation Office. Expansion of this capability, with appropriate security measures and consent, would give funds – and members – a better picture of their situation, including assets, income, debts, marital status, and dependents.
Empowering members to securely share their data would enable funds to help, guide and advise them on products and strategies that reflect their situation, needs and objectives. With a shortage of financial advisers to meaningfully service the wave of new retirees, super funds must be able to support those who seek it. And they will need to do so at an unprecedented scale.
For nearly 40 years, the superannuation system has helped members save, invest and grow their super. Australia has one of the best superannuation systems in the world, accumulating more than $3.8 trillion of workers’ savings. But the system has reached maturity, and it needs to change. It lacks the flexibility to service the modern retiree. To avoid a crisis of confidence, reforms must focus on ensuring it is fit for purpose to meet the changing needs of retirees for the next 40 years and beyond.
Shawn Blackmore was chief officer, retirement, at AustralianSuper at the time of writing.
This article was published in the inaugural October edition of Retirement Magazine.
