Legacy issues – Australians still stockpiling super

According to a recent survey by independent research firm MYMAVINS for Fidelity International, Australians are still very much focussed on not spending all their superannuation in order to leave a legacy for their dependants. This is despite the recent introduction of the Retirement Income Covenant which now requires super funds to consider the retirement needs of members.

The MYMAVINS research involved an online survey of 1,500 Australian consumers over 26 years of age, with fieldwork undertaken in September 2023.

Almost four in five of those surveyed admitted they had a nest egg mentality – that is, they sought to avoid spending money to ensure they didn't run out of money and/or would have enough to pass onto their descendants.

And almost three in five respondents said they planned to leave their superannuation savings to their loved ones after they pass away.

The majority (three in four) acknowledged that the compulsory superannuation is designed to be spent during retirement, but most strongly believe that it’s their money to do what they want with.

We believe that at the heart of this mindset is the lack of confidence that many people have about how much they will actually need to live on in retirement. This was backed up by another question in the survey that found only around one in seven people were very confident that their retirement savings would be sufficient to support their desired lifestyle.

Living giving

Interestingly, the survey also found that many people want to transfer at least some of their wealth while they are still living. More than 50 per cent of those planning to leave a financial legacy said they wanted to transfer up to 40 per cent or more of their accumulated wealth at retirement, but around two in five preferred to share their wealth as a living legacy.

Only one in five said they preferred to just share their wealth as a bequest, with the remaining two in five having an equal preference, meaning that four in five want to leave some kind of living financial legacy.

Nearly 90 per cent said they were likely to transfer at least some financial legacy during their lifetime. But this raises questions around how much giving can be afforded and how to best organise that giving.

Also, we find that aspirations often exceed reality, with large living legacies occurring much less frequently than the responses would suggest. Only around one in seven people surveyed were likely to transfer most of their wealth before they pass away and two in three were likely to transfer 60 per cent or more after they pass away.

Opportunities for financial planners

Estate planning will become increasingly important in this great wealth transfer but while nearly two thirds of people intending to leave a bequest have a will, fewer than one in 10 have a comprehensive estate plan. Many just rely on discussions with family or don’t have any plan in place yet, although most of these people ‘plan to make a plan’ at some point. Additionally, nearly half are only somewhat or not confident at all in how to ensure their financial legacy goals are fulfilled and a similar proportion want to leave a lasting financial legacy but don’t really know how to do that.

This uncertainty presents opportunities for financial planners, but many may have to adapt their fee models. Much of the $3.5 trillion being transferred this decade will be lost to the asset management system - as beneficiaries pay down debt or use legacies to fund lifestyle and education - and this will negatively impact any adviser charging asset-based fees.

But a fall in revenue is avoidable. The kind of advice being demanded may be changing but it is definitely increasing. Financial advisers should start the process of assessing the relevance of fees that are not asset based and are agreed with the client upfront if they want to prosper in this new era.

Seeking professional advice to assist with estate planning matters can help determine how much wealth is needed to achieve financial legacy goals. Almost two in five of those leaving a financial legacy either currently have professional help or are planning to seek it. A further one in four would consider seeking professional advice to manage their estate plan.

For those that would not rule out professional support for estate planning, the top trusted source of professional advice is from a lawyer, followed by a financial planner.

The end game

The majority of people believe sharing their wealth with the next generation is important. However, lack of financial confidence, uncertainty around retirement spending requirements and how to best organise legacy plans can become barriers to effective decision making and fulfilling legacy wishes.

This is where financial advisers have an important role to play in empowering their clients to overcome a nest egg mentality and both spend and transfer their wealth with greater confidence and peace of mind.

The need for assistance is even more important for those people wanting to leave a 'living legacy' as they try and balance their own lifestyle needs after making these transfers of wealth.

Advisers that can adapt both their advice and fee models in order to provide the assistance required in this great wealth transfer will be well positioned in the decade ahead.

Simon Glazier, head of wholesale sales, Fidelity International