rest’s the journey begins report - member journey begins research shows baby boomers are in ......

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The Journey BeginsAustralia’s Journey to Retirement

June 2014

REST Industry Super’s second annual The Journey Begins report provides insights into how working Australians aged 50 plus and approaching retirement feel about the change they are about to embark on. It’s clear Australian Baby Boomers have some real concerns

about the super system, and many are underestimating what they will need to retire comfortably.

The Journey Begins research shows Baby Boomers are in danger of losing confidence in the stability of Australia’s superannuation system. Our research shows that 45% are ‘concerned about constant rule changes’, 14% say they do not understand the system and, perhaps of most concern, almost one in ten say they do not trust the system.

This is even more worrying when viewed in conjunction with another of our research findings that most of the over 50s who are still working have not accumulated enough superannuation savings to fund the retirement lifestyle they want. Our research shows they will look to bricks and mortar or the age pension to supplement their super income. For most of the 82% of Baby Boomers who own their own homes, their housing is worth more than their super balances.

September 2013 brought a new Federal Coalition Government. The Journey Begins research, carried out just after the election, reflects Baby Boomers’ concerns that a new government may bring further changes to Australia’s superannuation system. It’s important to view this result in context with the significant size of this cohort who should be using this system to plan and save for the next stage on from their working lives (yet seem not to trust it).

The Australian Bureau of Statistics (ABS) tells us there are nearly three million Australians aged over 50 in the labour force, accounting for about 28% of the total current work force. As this group transition to retirement, the old-age dependency ratio in Australia is predicted to rise from 20 per 100 working population in 2010 to as high as 36 per 100 working population by 2030. The ABS expected the most rapid rise in the dependency rate will occur between 2011 and 2031 – in other words, it’s already here.

This sizable demographic shift for such a large cohort has important implications for governments, as well as the superannuation industry. Surely right now, more than ever, it is critical to instil confidence, security and surety in our superannuation system.

REST Industry Super believes that a stable regulatory environment surrounding super is the best tool to instil trust in the system and provide encouragement to our Baby Boomers – and indeed all other Australians – to utilise our superannuation system with full confidence as they start the journey towards retirement.

Damian Hill CEO, REST Industry Super

The Boomers are getting twitchy as retirement beckons

Contents Executive summary 4

Superannuation key to funding retirement 6

Retirement expectations 11

Appendix 1: Survey main finding 14

Appendix 2: Who we spoke to 15

References 15

Contact REST1300 300 778

(8am to 8pm Monday to Friday)

PO box 350, Parramatta NSW 2124

www.rest.com.au

02 | The Journey Begins

45%of respondents concerned about constant rule changes

25% Only

11%of respondents have a super balance of less than $50,000

of respondents have more than $400,000 in super

74%have little idea how much they will need to live on in retirement

2/3of respondents expect to need the age pension

2030by 2030 the ratio of pension receivers to working population will be as high as 36 per 100 working population

Over

50%Only

1/5of over 50s say they are looking forward to retirement

of Baby Boomers think Australia’s superannuation system is working for them

26%have a clear understanding of what they will need to live on in retirement

“over 2/3 of respondents identified their super as an expected source of funds during retirement”

“Those approaching retirement seem better prepared from a psychological view than a financial one.”

The journey begins right here

“Average superannuation balance for respondents fall short of what is needed for a comfortable retirement.”

The Journey Begins | 03

Executive summary

As this group transition into retirement, the old-age dependency3 ratio in Australia is expected to rise from 20 per 100 working population in 2010 to as high as 36 per 100 working population by 20304. The ABS expects the most rapid shift in the dependency rate will occur between 2011 and 20315, in other words it’s already underway.

The extent of this demographic shift means how well this sizeable group transition into retirement has important implications for governments, health and aged care providers, the retirement income industry and the broader community.

Unfortunately, our research indicates that as a group this cohort is under-prepared for their approaching retirement.

A key challenge for over 50s who are not yet retired is that the broad-based compulsory superannuation system only started in 1992. This means that those approaching retirement have not had the benefit of accumulating superannuation savings to the same extent as younger employees, who will have more years in the labour force under the system by the time they retire. As such, alternative income sources will also be needed – such as the age pension and private savings from areas such as housing.

To gain insights and track potential shifts in thinking as the group approaches retirement, REST has developed the annual The Journey Begins series – of which this report is the second edition. The publication again focuses on the attitudes, concerns and plans of over 50s who are not yet retired.

The findings in this report are largely based on a national survey of 1,005 people aged over 50 and still working, which was commissioned by REST and undertaken in October 20136. Survey participants were representative of the Australian population.

According to the latest available data1 from the Australian Bureau of Statistics (ABS) there are 2,962,195 Australians in the labour force2 aged over 50. This accounts for 28% of the total current labour force.

1 Australian Bureau of Statistics, 2011 Census of Population and Housing, table 32f labour force status by age by sex for Australia.

2 The labour force includes people working full-time, part-time and those who are seeking work.

3 The old-age dependency ratio measures the ratio of working age population (15-64) to over 65s.

4 United Nations (2013), Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2012 Revision.

5 Australian Bureau of Statistics (1999) Australian Social Trends, 4102.0.6 See Appendix 1 for survey summary and Appendix 2 for details of survey

participants.


Key findings and implications

Superannuation important part of retirement plans• Over two-thirds (69%) identified superannuation as a source

of funds they are depending on in their retirement. This is slightly lower than the 73% that identified superannuation as a source of funds in the 2012 survey.7

• Despite this identified importance, confidence in the superannuation system is mixed. There are 45% of respondents concerned about the constant rule changes and only 20% think that it’s a good system that is working for them. A further 14% said they do not understand the system and 9% said they do not trust the system.

• Current superannuation balances of this group as a whole fall short of what is considered to be needed to have a comfortable retirement and many will need additional support via a full or part age pension – 64% expect to need the age pension to supplement their superannuation savings. Housing related savings, through paying off a mortgage as quickly as possible, will also supplement superannuation savings.

Financial advice take-up has increased• Use of financial advice has increased since the last survey.

Over half (52%) report having taken some financial advice about either their superannuation or other investments – up from only 30% in last year’s survey.

Not everyone is looking forward to retirement• Over 50s, who are not yet retired, have become less keen

on the idea of retirement over the past year – with only 53% looking forward to it, compared to 60% in 2012. But the majority (81%) still intend to retire at some point.

7 In August 2012 REST commissioned an online survey of 1,215 people aged 50 and not yet retired.

45%of respondents were concerned about the constant rule changes

20%think that it’s a good system that is working for them


Superannuation remains a key part of retirement finance plans

Over two-thirds (69%) of survey respondents identified superannuation as an expected source of funds during their retirement. This is slightly lower than the 73% that identified superannuation as a source of funds in the 2012 survey. Despite the slight fall, superannuation is still well above other important private sources of retirement income including cash savings (30%), selling home/downsizing (18%) and investment property (16%).

Apart from superannuation, saving via paying off a mortgage as quickly as possible is another mechanism this group has used to save for their retirement. When asked to rank the best investments for saving for retirement, the top three given were:

1. Paying off mortgage as quickly as possible

2. Putting spare money into superannuation

3. Bank accounts/term deposits.

The high ranking of a mortgage to save for retirement is not surprising given the high home ownership rate of those approaching retirement. The ABS estimates 82% of over 55s own their own home – either with or without a mortgage.9

In addition, for this group, housing is worth more than their superannuation balances. Only 11% of those surveyed had a superannuation balance above $400,000 but the median national house price is over $500,000.10

The importance of superannuation is highlighted by 37% closely monitoring their superannuation balances and 39% with a rough idea of their balance.

However, 24% rarely or never check their balance. The low level of interest is particularly prominent in the younger age group with 27% of 50-55 year olds in this category, versus 22% of 65-70 year olds.

Key finding

Over two-thirds (69%) identified superannuation as a source of funds they are depending on in their retirement.

Superannuation is a key component of funding retirement, even for over 50s who commenced their working lives prior to the start of the broad based compulsory superannuation system that exists today8.

8 The Superannuation Guarantee started in 1992 at a rate of 3% and gradually increased over the next 10 years to 9%. 9 ABS (2013) Housing and Occupancy Costs (2011-12) 4130.0 table 9.10 Real Estate Institute of Australia, December Quarter 2013.

How often do you check the balance of your superannuation?

39%

27%

10%12%

12%

Often – I know exactly what the balance is

Regularly – I have a good idea of what my balance is

Occasionally – I know roughly what my balance is

Rarely – I’m not really sure what my balance is

Never – I have no idea what my balance is

Source: REST Survey, October 2013


11 Australian Centre for Financial Studies (2013) Melbourne Mercer Global Pension Index.

Confidence in the system is mixed, undermined by rule changesInternationally the Australian retirement income system – including superannuation – is well regarded. The Melbourne Mercer Global Pension Index11 gave the Australian retirement income system a B+ in its 2013 report and ranked Australia third globally (behind Denmark and the Netherlands). This index looks at the adequacy, sustainability and integrity of the retirement system as a whole (rather than the experience of specific individuals).

Despite this positive international recognition, the survey revealed over 50s have some concerns about how the system operates. This lack of confidence could be one factor behind the strong focus of this group on accumulating housing assets while they have worked to fund their retirement, rather than superannuation.

The survey found almost half (45%) are “concerned about the constant rule changes”. Only 20% agree “it’s a good system that is working for them”. A further 14% “don’t understand the system” and 9% “don’t trust the system”.

Less than half (46%) agreed that “superannuation is essential and an important part of their retirement plans”. A further 19% admit to “being glad it’s there but not really paying much attention to it”, and another 19% said they are “just closing their eyes and hoping for the best”.

Key finding

Confidence in the stability of the the superannuation system is mixed.

Which of these phrases best describes your attitude to your super?

10%

19%

46%

19%

6%

I think super is essential – it’s an important part of my retirement savings

I pay a little bit of attention to it and bump it up when I can, but it isn’t my main investment priority

I’m glad it’s there for when I retire, but I haven’t really paid much attention

I hate the fact that I’ve been forced to put so much of my income into it

I’m just closing my eyes and I’m hoping for the best



Balances will need a top-up from age pension and housingA question facing those considering retirement is – how much is enough?

The March 2014 ASFA Retirement Standard12 spending requirements for a comfortable lifestyle for a couple who own their own home is around $57,817 of income per year. The Association of Superannuation Funds of Australia Ltd (ASFA) data also shows that a couple would need a combined superannuation balance of $510,000 and a single individual would need a balance of around $430,000 for a comfortable lifestyle in retirement.14

Those involved in this study (over 50s who are not yet retired) have not had the benefit of compulsory superannuation for all of their working lives. As a result, many of the respondents indicated they have not accumulated sufficient superannuation savings to completely fund the retirement lifestyle they want. They will need to supplement this with other savings such as the age pension and housing-based savings.

Almost two-thirds (64%) think they will need the age pension to supplement their superannuation savings and a further 21% were not sure if they would or not.

This view that they will need additional help from the government is supported in the low level of superannuation balances held by those approaching retirement.

• 25% have less than $50,000 (these are mainly homemakers, carers and part-time/casual employees).

• A further 12% have $50,000-$100,000 and then 11% for $100-$200,000 and $200-$300,000.

• Only 11% have more than $400,000.

• Only 4% of those surveyed said they had a superannuation balance over $700,000.

Key finding

Current superannuation balances of this group as a whole fall short of what is needed to have a comfortable retirement and many will need additional support via a full or part age pension and/or housing-related savings.

12 Comfortable retirement lifestyle – Enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

13 The Association of Superannuation Funds of Australia Ltd Superannuation Statistics, January 2014, www.superannuation.asn.au.14 The Association of Superannuation Funds of Australia Ltd Media release: 31 January 2014 ‘Higher cost of living increasing pressure on

retirement savings: ASFA Retirement Standard March quarter 2014.15 www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions/how-much-is-enough. as of Nov 2013

What is the account balance of your super?


%

These levels of superannuation balances alone are not enough to generate the required annual returns for a comfortable retirement.

The survey results suggest housing-based savings are also likely to provide additional savings support for some approaching retirement. Half of the group said they owned property with no associated mortgage. This group could down-size their fully-owned home to supplement superannuation income streams and/or the age pension. Even those that have a house with a mortgage could downsize and use some of the accumulated equity (if any) in their home to fund part of their retirement.

Not sureI would rather not sayMore than $1,000,000

$900,001 - $1,000,000$800,001 - $900,000$700,001 - $800,000$600,001 - $700,000$500,001 - $600,000$400,001 - $500,000$300,001 - $400,000$200,001 - $300,000$100,001 - $200,000

$50,001 - $100,000< $50,000

0 5 10 15 20 25 30


64%of respondents expect to need the age pension

25%of respondents have a super balance of less than $50,000

26%have a clear understanding of what they will need to live on in retirement

Reality versus expectationsOne of the features of last year’s The Journey Begins report was the gap between what people think they need to retire on and what they are actually likely to need. This gap, with expectations below reality, persisted in the 2013 survey.

Only 26% say they have a clear understanding of what they will need to live on and over a half (57%) say they have a basic understanding – 18% admit they have no idea. However, when asked to nominate a range that they think they will need, over half underestimated their requirements.

The ASFA Retirement Standard spending requirements for a comfortable lifestyle of a couple who own their own home is $57,817 per year. But only 22% of the group nominated the range of $50,000 to $60,000 per year as what they would need to spend to retire comfortably. Over half (54%) nominated a figure below $50,000.

How much money per year do you think you will need to lead a comfortable retirement?


%

$100,000 or more

$90,000 - $99,999

$80,000 - $89,999

$70,000 - $79,999

$60,000 - $69,999

$50,000 - $59,999

$40,000 - $49,999

$30,000 - $39,999

$20,000 - $29,999

$10,000 - $19,999

Less than $10,000

0 5 10 15 20 25



Willingness to seek advice is on the riseThe 2013 survey indicated an increased interest in receiving financial advice. Over half (52%) said they had received some kind of financial advice, either on their superannuation or on other investments. This was up from only 30% in the 2012 survey. This is a positive trend for those approaching their retirement and will hopefully result in better outcomes in terms of overall income adequacy and retirement planning. This is obviously a significant jump in those who are receiving financial advice, and while the reasons for this increase are unclear, it will be one to watch in the next version of this report.

Nevertheless, it still leaves 48% that have not received financial advice. This reluctance is driven by a concern advice is too expensive (36%), a desire to just handle their own financial affairs (37%) and a belief there is no need (33%). A lack of trust (28%) is also an issue for some respondents.

Why have you not sought formal financial advice at any time in your life?

The Federal Government has recently introduced changes as part of the Future of Financial Advice (FOFA) package to the way the financial advice sector operates. This includes changes to fee arrangements to encourage advisors to offer both scaled and full advice models to clients. The Journey Begins project will continue to track the attitude to financial advice of those approaching retirement and monitor any changes that might emerge as a result of the FOFA package.

Key finding

Use of financial advice has increased since the last survey.


% (multiple answers possible)I see no need to

I don’t trustfinancial advisers

I handle my ownfinancial aairs

Financial advice istoo expensive

Other(please specify)

0 5 10 15 20 25 30 35 40


Retirement is not just about finance – attitudes to approaching retirement are much broader and include whether or not people are mentally prepared for giving up paid work.

According to last year’s survey, those approaching retirement are better prepared from a psychological point of view than a financial one. Only 25% of people said they are not mentally prepared for retiring but 35% said they are not prepared financially.

Not a universal positiveThe complexity of attitudes to retirement means it is not something that is universally positively anticipated. Indeed, this year’s survey showed a decline in the number of people saying they are looking forward to retiring. Only just over half (53%) said they are looking forward to retiring – this is down from 60% in the 2012 survey. A further 19% said they are not looking forward to retiring – up from 16% in 2012.

Key finding

Over 50s, who are not yet retired, have become less keen on the idea of retirement over the past year. But the majority still intend to retire at some point.

About half (49%) have at least some concerns about retirement. By far the biggest concern was not having enough money to live on. The second and third ranked were ‘health’ and ‘getting old’ – two issues that are more closely related to ageing in general rather than specific concerns about ceasing paid work.

Despite this lack of enthusiasm for retirement by nearly half the respondents, almost two-thirds (64%) said they believe they are supported with enough information about leading a meaningful retirement.

Even with some reservations, a large majority (81%) of people have a clear view that they intend to retire at some point in the future – with only 7% saying they never intend to retire.

Retirement expectations

Are you looking forward to retirement?

28%

53%19%

Yes No Don’t Know


52%of respondents had received some kind of financial advice

49%have at least some concerns about retirement

Over

50%of over 50s say they are looking forward to retirement


Easing into retirement remains an attractive option for someEasing into retirement via part-time work is desirable for 40% of respondents, with a further 29% not planning on reducing hours into retirement and the remaining 31% unsure what they plan to do yet.

A gradual moving into retirement has particular appeal to 60% of self-employed respondents, with only 15% of those who are self-employed saying they will not take up this option. Part-time work is something that appeals more to the older age groups in the survey (35% for 50-55 compared to 47% for 61-64 and 43% for 65-70).

Some people are forced to delay retirementA sizeable share (39%) of those surveyed said they would be retired already if they had the choice. This is a consistent figure across age groups for those under 70 (39% – 50-55, 40% – 56-60, 38% – 61-64, 39% – 65-70).

Looking more closely at this group, the top three reasons given for not yet retiring, despite wanting to, are:

• I thought I would have saved more into my super fund by now so I need to work for longer to build up extra savings for retirement

• I haven’t reached the age I want to retire as yet

• My super earnings were impacted by the Global Financial Crisis (GFC) so I need to work for longer than I planned.

Since there is no official retirement age in Australia, the issue of age is a personal preference rather than an actual barrier to retiring. However, this age-related barrier may be linked to the issue of eligibility for the age pension and/or accessing superannuation funds on a tax-free basis. But the other two dominant reasons clearly indicate that financial considerations are the main reason people have been unable to exercise their choice of when to retire.

The financial concerns of this group is further supported by 72% of them saying they are concerned they do not have enough savings (superannuation and non-superannuation) to retire on – this is above the 63% figure for the whole surveyed group.

Dependants play a role in retirement planningOften retirement considerations are not just about personal needs, but also the impact on dependants. Over a third (37%) said they had dependants – a similar outcome to the 2012 survey. These are mostly partners (55%) but some have children under 18 (36%) and even children over 18 (35%) that are financially dependent.

For those that have dependants, two-thirds reported that it has had an impact on their decision to not yet be retired – indeed 30% say it has had a major impact.


Barriers to retirement – financial rather than mentalOver 50s are better prepared from a psychological point of view than a financial one. Only 25% of people said they are not mentally prepared for retiring but 35% said they are not prepared financially. In addition, less than half (42%) said they were either extremely or somewhat financially prepared for retirement.

This lack of financial preparedness means 55% think they will have to stop doing things when they retire because of a lack of money. But indications are that they are more prepared to give up essentials – such as new clothing, home improvements – rather than purely discretionary purchases like holidays.

Most prepared to give up Least prepared to give up

1 Alcohol/tobacco Domestic holidays

2 New clothing International holidays

3 New household appliances Internet/mobile phone

4 Home improvements Dining out

5 Cinemas, plays, sports or day trips

Health insurance

The majority seeking a relaxed retirement The lack of willingness to give up holidays was also reflected in other parts of the survey. Almost two-thirds (63%) describe their retirement as an ‘opportunity to chill out and enjoy the fruits of my labour’. The remaining 37%, however, are keen to pursue other goals during their post-paid work life. These goals include a range of areas such as travel, volunteering and looking after grandchildren.

What goals would you like to persue in retirement?


% (multiple answers possible)

0 10 20 30 40 50 60 70

Other(please specify)

Travel

Assume a carer rolefor a significant other

Look after myparents

Look after mygrandchildren

Mentoring inthe workplace

Take up study

Do morevolunteer work


Appendix 1: Survey main findings• Over two-thirds (69%) identified superannuation as a

source of funds they are depending on in their retirement.

• 64% expect to need the age pension to supplement their superannuation savings. Other important non-government sources of retirement funds include cash savings (30%), selling home/downsizing (18%) and investment property (16%).

• 37% of people are closely monitoring their superannuation balance. A further 39% have a rough idea of their balance – although 24% rarely or never check their balance.

• 63% are worried that they do not have enough superannuation savings and other savings.

• 45% are concerned about the constant rule changes and only 20% think that it’s a good system that is working for them. A further 14% said they don’t understand the system and 9% said they don’t trust the system.

• 57% have a basic understanding of what they will need to live on – with only 26% saying they have a clear understanding. 18% admit they have no idea.

• Only 22% said they thought they would need $50-$60,000 per year – which is the actual ASFA estimate for a comfortable retired couple. Over half (54%) nominated a figure below this as what they would need to live comfortably.

• Over half (52%) reported having some financial advice about either their superannuation or other investments – up from only 30% in last year’s survey.

• This means almost half (48%) of respondents have not sought financial advice. This reluctance is driven by a concern advice is too expensive (36%), a desire to just handle their own financial affairs (37%) and a belief there is no need (33%). A lack of trust (28%) is also an issue for some respondents.

• 53% are looking forward to retiring, compared to 60% in 2012. In addition, a further 19% are not looking forward to retiring – up from 16% in the 2012 survey.

• The majority (81%) still intend to stop working at some point.

• 39% of respondents said they would be retired already if they had the choice.

• Respondents are better prepared from a psychological point of view than a financial one. Only 25% of people said they are not mentally prepared for retiring but 35% said they are not prepared financially.

• 55% think they will have to stop doing things when they retire because of a lack of money.

• 40% of respondents say they want to ease into retirement via part-time work.


Appendix 2: Who we spoke toDuring October 2013 REST conducted an online survey of 1,005 people who were all aged over 50 and not yet retired. The following are the key characteristics of the survey sample.

Gender• 48% Male and 52% Female

Age distribution• 50-55 years 41%

• 56-60 years 29%

• 61-64 years 18%

• 65-70 years 10%

• 71-75 years 2%

• 76-80 years 1%

• 81 years or older 0.2%

Employment status• Full-time (+30 hours per week) 35%

• Part-time / casual 28%

• Self-employed 13%

• Homemaker 11%

• Carer 2%

• Semi-retired 5%

• Not currently working 6% but looking for work

State of residence• NSW 33%

• VIC 25%

• QLD 21%

• SA 7%

• WA 9%

• ACT 2%

• TAS 2%

• NT 1%

Marital status• Single/divorced 24%

• Married 63%

• De facto 10%

• Widowed 3%

ReferencesAustralian Bureau of Statistics (2012) 2011 Census of Population and Housing

Australian Bureau of Statistics (1999) Australian Social Trends, 4102.0

Australian Bureau of Statistics (2013) Housing and Occupancy Costs (2011-12), 4130.0

Australian Centre for Financial Studies (2013) Melbourne Mercer Global Pension Index

The Association of Superannuation Funds of Australia Ltd (2013) Superannuation Statistics – January 2014, www.superannuation.asn.au

The Association of Superannuation Funds of Australia Ltd (2013) Retirement Standard – March quarter 2014, www.superannuation.asn.au

Real Estate Institute of Australia, December 2013 quarterly data,

REST (2013) unpublished survey of 1,005 people over 50 who are not yet retired

United Nations (2013), Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2012 Revision

www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions/how-much-is-enough

This paper contains general advice about our superannuation products and has been prepared without taking account of your objectives, financial situation or needs. So before making any decision about our products based on this advice consider whether it is appropriate for your own objectives, financial situation and needs; and consider the Product Disclosure Statement (PDS) at www.rest.com.au or call 1300 300 778. When you become a member of REST Industry Super, you join the Retail Employees Superannuation Trust, Fund ABN 62 653 671 394. REST Industry Super is issued by the Trustee, Retail Employees Superannuation Pty Limited ABN 39 001 987 739, AFSL 240003. The Trustee has no relationships or associations with any other product issuer that might reasonably be expected to influence us in providing this advice.


Issued by Retail Employees Superannuation Pty Limited ABN 39 001 987 739 AFSL 240003 Unique Superannuation Identifier RES0103AU Retail Employees Superannuation Trust ABN 62 653 671 394 600.6 01/14 1SS9

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