Opportunity to transform retirement investing

10 December 2020

Enabling confidence through new thinking on retirement planning, financial advice and products could help millions of Australians maximise their quality of life in retirement.

These were the main themes at an Allianz Retire+ webinar yesterday featuring Dr Deborah Ralston, a panel member of the Retirement Income Review (RIR), and Sally Evans, a financial services and aged-care expert and Allianz Retire+ Director.

More than 250 retirement-industry professionals attended the webinar event. Caitriona Wortley, Head of Distribution at Allianz Retire+, facilitated the discussion.

Ralston and Evans said the RIR was an opportunity for broader conversation on retirement that considered the family home, aged-care trends and the pension.

Both experts welcomed the Federal Government's proposed Retirement Income Covenant, which will require trustees to consider the needs and preferences of members, and ensure retirees have greater choice in how they take superannuation benefits in retirement.

"I'm very much looking forward to (the covenant) coming in," said Ralston. "It feels a bit overdue. I can see in a decade how superannuation funds will have a portfolio of products sitting on their platforms for retirees, to help them through that phase of their life".

Evans urged the government to fast track the start of Retirement Income Covenant, which has been deferred to 1 July 2022 to enable continued industry consultation.

"It's time to do this now," Evans said. " The covenant is essential because (our industry) is so heavily weighted to the accumulation phase of retirement. A covenant will help us all focus on the purpose of superannuation and what is the right way for individuals to smooth their income to last a lifetime”.

Webinar attendees agreed on the need for a Retirement Income Covenant. In an online poll, they rated a "clear objective for the retirement income system" as a top-three priority.

The first priority should be improving the interaction between the retirement system and other systems such as housing, aged-care, the pension and tax, the poll found. The second priority was more accessible financial advice and guidance.

The family home and retirement savings

Evans called for a more in-depth discussion on the family home as a savings vehicle. "The house is where most people's savings end up, but retirees don't think about how they can draw down on those savings in the same way they think about drawing down on other savings pools. I was happy to see how the RIR dealt with (the family home)."

Ralston said more Australians would have a mortgage in retirement. "It's a whole new frontier. With products that are emerging now in equity release, and particularly the Pension Loan Scheme, it's quite possible to stay living in your home for longer, and to use a small part of your (home) equity to supplement your income."

Aged-care trends will have a more significant influence on retirement-income planning, said Evans, who has served on corporate and government aged-care boards. "We need a system where more people can be in control of their ageing by being able to access and afford in-home care. But people will have to co-fund part of in-home care. We need to create a mindset about the need to invest part of retirement income on in-home services that enable retirees to maintain and retain their independence. We need to move from an aged-care model to a health-and-wellbeing model. I see in-home care and retirement investing as closely linked."

Retirees need a better understanding of the pension's role in retirement income, said Ralston. "We tend to think of (the pension) it as being a safety net, but it plays an integrated role with other kinds of retirement income. By the time people get to (age) 80, about 80 per cent of retirees are receiving some form of benefit through the aged pension.”

Reducing retirement uncertainty

Lack of awareness about the family home as a source of retirement income, aged-care costs, and the pension contributes to retiree reluctance to drawdown on capital – a key finding in the RIR.

Evans said the retirement-investment industry must do more to help retirees remove the emotional barriers of drawing down on their capital. "People don't know how long they will live, how long they will work or what their health status will be. Those uncertainties play out in fear and a lack of confidence. That creates an enormous challenge for people to overcome."

Caitriona Wortley said Allianz Retire+ research consistently shows that retirees crave greater confidence and certainty in investing. "Our research found 61% of Australians fear running out of money more than they fear death. Our industry needs to lower that number and help retirees feel more confident about the value of their investments.”

Ralston said better information and education in the lead-up to retirement could improve confidence. "It's important to get people to think about themselves as they come into retirement. What kind of income am I going to have? What can I do (about it)?"

Ralston cited recent research by the ARC Centre of Excellence in Population Ageing Research (CEPAR) and Cbus that can positively change member attitudes towards retirement investing. "Instead of only giving super-fund members their account balance, they get an indication of what their (future) retirement income might be. People start to think in income terms rather than 'nest egg' terms - an important distinction."

Ralston adds: "The result is members engage much more strongly with their super fund. In some cases, they start to make voluntary contributions and prepare themselves for retirement. They move from thinking about their retirement savings as a nest egg that provides dividends and interest, towards viewing it as capital to draw down over retirement. Leading people through this process is challenging, but if we start early in the accumulation phase, and get people into that way of thinking, we can see real benefits."

More engaged members and better access to financial advice is a powerful combination, said Ralston. "Retirees need advice, information and guidance. We need to smooth the path to more accessible and achievable advice, particularly for low-income people. If retirees are going to be confident and able to move forward with certainty, they'll need expert input." 

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