A new Australian study has raised concerns about how the government and super funds are interpreting retirement preparedness data. The study found 78 per cent of pre-retirees did not consider themselves ready for retirement.
This is a similar figure to data from a separate survey released in January, which showed only 20 per cent of Aussies expected to have enough money to retire.
That study, titled the Global Retirement Reality Report, was published by State Street Global Advisors. The new report, conducted by Capital Preferences and supported by Challenger, supports those earlier findings.
The Capital Preferences report, titled Revealing Member Income Preferences, also looks at the underlying factors driving pre-retirement uncertainty.
The reasons for doubts about retirement preparedness
What the study uncovered was that there was no clear link between preferences for income certainty and salary, age or super balance. Instead, the factors were far more nuanced and complicated. Preferences and concerns were “highly individualised”, making grouping data a difficult proposition.
In turn this could lead to government and super funds misinterpreting data when using it to create retirement preparedness strategies.
Capital Preferences co-founder and chief scientist Shachar Kariv explained the potential shortcomings. “Simply relying on demographic data to predict income certainty preferences will almost certainly misdiagnose members,” he said. As a result, this could “hinder super funds in providing fit-for-purpose retirement income assistance”.
Mr Kariv said the Capital Preferences report also highlighted a lack of knowledge of certain products that deliver retirement preparedness. He highlighted what he said were the top two contributing factors associated with a greater sense of retirement preparedness.
They were home ownership and ownership of a guaranteed lifetime income product (GLI), such as an annuity. However, the Capital Preferences report indicated that, of Australians aged under 65, two-thirds had no knowledge of GLI products. Further, only 8 per cent of those aged 55 to 65 had any awareness of GLI products.
Capital Preferences intimated that GLIs could help pre-retirees attain their long-term income certainty preferences, delivering that goal of retirement preparedness. But its research indicated that of the $1.23 trillion pool of retirement income savings, including superannuation, GLIs comprised only $43 billion.
While $43 billion sounds like a lot, it represents only 3.5 per cent of that total pool.
A future of being better prepared
Mr Kariv believes the Capital Preferences report shows a need to widen the scope of future retirement preparedness surveys. “Our findings highlight the importance of recovering individual preferences as part of the member experience,” he said. “Members can’t self-report their preferences in areas of risk, but they can show us with their decision-making.”
The Capital Preferences report will be one contribution to a consultation initiated last year byfinancial services minister Stephen Jones. This consultation examines how superannuation members can be supported in navigating the retirement income system. It also looks at how funds can deliver better retirement income products and making lifetime income products more accessible.
Today is the final day of that consultation process.
Do you feel you have adequate retirement preparedness? What could the government and super funds do to help? Let us know via the comments section below.
Also read: How to discover your perfect retirement age
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