Retirees on edge

Superannuation system doesn’t deliver as COVID-19 puts paid to the old expression “looking forward to retirement”

7 July 2020 | Staff Writers (Image: Jack Finnigan)

A survey of over 1,000 current and prospective retirees shows uncertainty over their future quality of life and apprehension as to whether their retirement funds will last.

Analysis from wealth managers Allianz Retire+ reveals that Australian retirees are downgrading their retirement expectations, spending less on luxuries, and are fearful and confused about the safety of their investments.

Only one-third of those surveyed feel confident in their financial position, while 66% no longer believe Australia’s superannuation system will provide them with a dignified retirement.

Says, Allianz Retire+ CEO Matt Rady, “It suggests the Australian superannuation system, which is lauded as one of the best globally, is not working for a great deal of the people it’s designed for.

“Moreover, COVID-19’s impact has exposed systemic issues in the drawdown phase of retirement, highlighting shortcomings in retirement product design, access to financial advice and superannuation education.”

Retirees nervous even before COVID-19

A corresponding survey in 2019 found retirees “feeling nervous and uncertain about what’s ahead and lacked in investing confidence.”

The backdrop for that survey was a climate of very low returns on fixed interest deposits, soft economic conditions, a market slowdown in residential property and equity market risk.

Says Rady, “On both occasions the research indicated retirees want safe, simple, low-cost retirement products with certainty a key feature. Unfortunately, the investment industry is not generally meeting that need.

“The current survey found that three in four retirees are not confident about how long their money will last in retirement and when asked about their investments during the pandemic, only 18% felt their investments would be safe in case of economic downturn. They also reported being largely risk averse, seemingly exacerbated by the pandemic.”

Half of those surveyed reported COVID-19 had prompted them to far more closely monitor their investments.

Most alarming only one in three respondents said were happy with the federal government’s response to COVID-19 policies that affect their retirement.

Says Rady, “The pandemic has brought many of the systemic issues back to the surface and there needs to be a greater sense of urgency in delivering change to the system. 

Prospective retirees have greatest concerns

Unsurprisingly prospective retirees, defined in the survey as those with seven years or less until retirement are feeling the pinch. For many people in that category, the final years of their working life represent a concerted period where they have the financial capacity to top up their retirement savings.   

Four out of ten of prospective retirees reported losing money throughout the COVID-19 pandemic, while more than one-fifth say their employment situation has changed or they expect it to.

According to Rady, “Falling retirement savings and rising job insecurity is a toxic combination. Around one in three prospective retirees now have more negative expectations of their retirement. And 77% of prospective retirees do not believe superannuation will provide them with enough money in retirement.

“Those nearing retirement have been particularly hurt by the downturn. These investors tend to have more funds allocated to shares, so have higher susceptibility to market crashes. Typically, they are still working and need that income to build retirement savings.

“This is where the impact of COVID-19 has shown the danger of ‘sequencing risk’, where the timing of poor market returns can permanently damage retirement savings. Prospective retiree investors can ill afford to have the share component of their superannuation crushed by market volatility. Many do not have enough time left in the workforce to rebuild their wealth.”

On their own

Reflecting general uncertainty and physical isolation brought on by COVID-19 lockdowns, 79% of those surveyed did not seek financial advice during COVID-19.

For many loss of income and declining asset values was a key concern with two-thirds shying away from financial advisers because they felt the service was too costly.

Among those who did seek financial advice, 68% reported they will stick with their existing financial plans.

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