With its well-established superannuation funds, Australia has perhaps the most advanced retirement saving system of the countries covered in this report. During their working years, Australian employers have to make mandatory contributions, set by legislation, into citizens’ retirement accounts. However, at retirement, most of these restrictions are lifted and savers are confronted with the complexity of how to spend their money in retirement.
Along with the US, Australia is known for its relatively high levels of investment literacy, with high levels of retail investing providing just one example of this. Our findings align with this in places but, as with other regions, identify an advice and service gap in relation to retirement spending. Many savers do not engage very actively with their retirement investments during their working years, so deciding how to spend their money can be a daunting prospect.
The advice gap
One third of Australians approaching retirement have never received any advice, and the sources they are using don’t live up to expectations.
Following a lifetime of saving for retirement, many Australians still do not understand the options that will be available to them at the point they begin taking retirement savings. One third of all respondents, and one quarter of those over 55, say that they do not have a good understanding of the options that would be available to them. Despite high numbers saying they have little understanding, more than one third (34%) of respondents approaching retirement, and four in every ten (38%) of the 45-55 age group, say they have never received any advice on retirement.
Even when people seek advice, it does not always live up to expectations. Most respondents say they would expect to receive advice from financial advisers (53%), their superannuation fund (50%) or government websites (41%). However, when asked where they had received useful advice, 29% of 55+ respondents said financial advisers and only 16% mentioned their superannuation fund.
Traditional 'retirement' is over
Retirement is becoming a transition rather than a one-off.
At the same time as people are finding it difficult to find helpful advice for planning their retirement, the process of retiring is becoming more complicated. A common trend across all the surveyed countries is that people increasingly expect to ease into retirement over a multi-year period. In Australia, 55% of respondents expected retirement to be an event with several stages, and only 16% of over 55-year-olds expected it to be a one-off event. About one third of respondents of all age groups expect to continue to work part-time during retirement.
Australia’s mature market recognises this, and takes the ‘transition’ behaviour into account far more than other regions. Superannuation funds allow members to reduce hours and top up their income via ‘Transition To Retirement’ (TTR) between their ‘preservation age’ and age 65. This adds flexibility for savers, but also complexity around decision-making.
40% of Australians expect to retire between the age of 65-69. This tallies with the Government ‘Age Pension’, for which Australians must be 66 or older to qualify.
People generally understand that the retirement age is likely to continue to rise, and 21% of 18-24 year-olds expect to begin accessing retirement savings between age 70-74. About 7% of respondents said that they don’t ever expect to retire.
Lifestyle realities and fears
Most people expect their spending to decrease slightly during retirement. Affording their desired lifestyle and healthcare costs are the biggest concerns.
Closely related to the question of when to retire is what type of lifestyle retirees will be able to afford. Indeed, the biggest concern in retirement was not being able to afford their desired lifestyle (51%). Healthcare costs (48%) and day-to-day living costs (45%) were also major sources of concern. About half of respondents expected their spending in retirement to either remain the same or decrease slightly, and 26% of those who were close to retirement expected their spending to decrease a lot. Just 12% reported not having any concerns around their finances in retirement, perhaps surprisingly low when considering the maturity of the Australian retirement system.
Control and flexibility: key retirement saving needs
People want ownership and advice in retirement. Clear communications, flexibility and guidance are key features of a good retirement plan provider.
Most Australians want to have control of their retirement decisions, but they also want some help with the process. While 29% wanted to manage all their retirement finances themselves, a much larger share (48%), wanted to receive some assistance when making their decisions. Only 11% wanted to fully delegate retirement decision-making to a third party.
Transparency and flexibility are key features of a good retirement plan. Online access (51%) and clear simple communications (52%) were among the features that people prioritised when choosing a retirement provider. The flexibility to change their income when needed (45%) and the ability to receive guidance on how much they could safely spend (44%) were also priorities.
A key challenge faced by savers in defined contribution systems all over the world is converting a savings balance into income during retirement. In Australia, most people wanted to keep their savings invested and use these to fund an income in retirement, either in the form of interest from investments or as a regular income stream. 22% want to receive a guaranteed income or annuity. Only 8% of respondents responded that they want to withdraw their retirement savings as a lump sum.
New regulation will require the superannuation funds to have a retirement income strategy for their members. The superannuation funds are well-placed to be the first source of advice and information for planning the retirement phase. By transforming member engagement, providing members with the tools they need to easily plan and implement their spending in retirement, they could make a significant contribution to improving retirement outcomes for Australians.