22 June 2020 

Coronavirus dampening retirement dreams of Australians

New research from Allianz Retire+ shows harsh economic impact of COVID-19 on current and prospective retirees.

Key findingsⁱ:

• Four in five retirees feel their investments are not safe from economic downturn (COVID-19). 
• One in three prospective retirees now have more negative expectations of retirement.
• Almost 80% of current and prospective retirees did not seek financial advice during the COVID-19 crisis. 
• 66% of retirees do not feel that Australia’s superannuation system will provide them with a dignified retirement.
• Less than a third of retirees understand investment options available in superannuation. 
   

Australian Retirees are downgrading their retirement expectations, spending less on luxuries, and are fearful and confused about the safety of their investments.

A new study by Allianz Retire+ found COVID-19 has shaken retiree confidence about the quality of their retirement – and how long their money will last.

Only a third of retirees surveyed feel confident in their financial position. Of those surveyed, 66% do not agree that Australia’s superannuation system will provide them with a dignified retirement.

“COVID-19 is taking a terrible toll on the economic wellbeing of many retirees,” said Allianz Retire+ CEO Matt Rady. “In addition to health concerns about the virus, and not being able see loved ones as much, retirees are yet again suffering from the sharemarket rollercoaster.”

Rady adds: “These results demonstrate that the Australian superannuation system, which is lauded as one of the best systems globally, is not working for a great deal of the people it’s designed for. COVID-19’s impact has exposed shortcomings in retirement product design, access to financial advice and superannuation education.”

Allianz Retire+ surveyed 1,007 current and prospective retirees nationwide to understand how COVID-19 was affecting their lifestyle, investment actions and retirement perceptions. The research extends Allianz Retire+’s ground-breaking “Next Chapter” study from last year.

Rady says the latest findings show COVID-19 has made retirees more fearful of the future. “Our previous research found many retirees were nervous and uncertain about what’s ahead and lacking in investing confidence. COVID-19 is taking that to a new level. Retirees continually tell us they want safe, simple, low-cost retirement products. They want products that give them certainty.  But the investment industry is not meeting that need.”

Three in four retirees are not confident about how long their money will last in retirement, the survey found. When asked about their investments during the COVID-19 pandemic, only 18% felt their investments would be safe in case of economic downturn.

Nearly half of respondents said they were monitoring their investments much closer due to COVID-19. Just under a third of current and prospective retirees surveyed were happy with the Federal Government’s response to COVID-19 policies that affect their retirement.

“Overall, there is an enormous sense of uncertainty and clear dissatisfaction that needs to be urgently addressed if the system is to work as intended. We have a huge opportunity to get the Australian system right and while there are pressing matters to attend to post COVID-19, this is one of them. There’s a real danger here if policy change isn’t swift and imminent” says Rady.

Prospective retirees most at risk

The economic impact of COVID-19 was greater on prospective retirees (within seven years to retirement) than current retirees, the survey found.

About 40% of prospective retirees said they lost money during COVID-19. Just over one in five said their employment status has (or may) change due to the economic downturn.

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,” says Rady. “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.”

Rady says the impact of COVID-19 shows the danger of “sequencing risk” - where the timing of poor market returns can permanently damage retirement savings. “Prospective investors can ill afford to have the share component of their superannuation crushed by market volatility. Some do not have enough time left in the workforce to rebuild their wealth.”

Rady says it is no surprise that around one in three prospective retirees said they would consider an investment product that ‘insured them from market downturns’, such as Future Safe from Allianz Retire +, an innovative retirement income product with in-built protection from sharemarket losses.

“COVID-19 reinforces the need of retirement-savings products that have a low-cost protection mechanism,” says Rady. “As prospective retirees are realising, diversification and asset allocation are no panacea to protect wealth during crises. Retirees need adequate protection on the share component of their portfolios.” 

Lack of advice

Remarkably, 79% of retirees did not seek financial advice during COVID-19, the survey found.

Only one in five retirees felt that they had easy access to professional financial advice and approximately a third felt financial advisers were ‘for the rich’.

Almost two-thirds of those without an adviser said they would not use a one because the service was too costly.

“We have to change perceptions of financial advice among retirees and increase access to affordable advice,” says Rady. “The advice proposition is proven to be an integral part of providing individuals with confidence and certainty in retirement. Those who use an adviser told us they feel more confident and secure in their financial position”.

“68% of those who were advised during COVID-19 said they are sticking to their financial plan. That means advice is definitely deterring people from making sub-optimal investment decisions based on fear or a lack of understanding.”

Simplifying superannuation

Superannuation complexity and lack of awareness has seemingly exacerbated the economic impact of COVID-19 on many retirees. 

Of those with money invested within a Superannuation Fund, about 70% did not feel well educated about managing their retirement income. Approximately three in five stated they did not know where their superannuation was invested. Further, just a third understood the investment options available to them in retirement.

“The survey shows too many retirees are confused about superannuation, don’t know enough about how their retirement savings are invested, or how secure their money is. 73% did not agree that there were adequate options available to manage their retirement income”.  

 

[i] Based on research commissioned by Allianz Retire+ and conducted by fiftyfive5 in May 2020 of 1,007 current and prospective retirees