A lack of “retirement literacy” is causing Australians to lean heavily on state-funded pensions to finance their lives post-retirement, according to a global fintech company.
As Australia’s population ages, driven by lower birth rates and increasing life expectancy, there could be negative consequences for the age pension system and increased pressure on future government budgets.
A recent GBST white paper, Managing the retirement income challenge: A global perspective, revealed that not saving enough money in the accumulation phase was the top factor impacting advised and non-advised Australians as they approach retirement.
Using a survey of 120 advisers from Australia and the UK, the paper found that knowing what approach to take for their pension income, such as drawdowns, annuity, or a combination of the two, was also having a significant impact on clients, with 44 per cent of advisers ranking it in their top two concerns.
Since the 2019 royal commission, the advice profession has seen a significant reduction in the number of advisers – from about 28,000 to 15,500 – alongside increased compliance requirements, both of which have driven up the costs of providing and receiving financial advice.
“Cost is often cited as a barrier to more people taking up advice, but providing a professional, expert service, especially one that is highly regulated, comes at a price. Consideration needs to be given to how the regulatory burden on advisers can be simplified without reducing the quality of recommendations,” the report said.
Highlighting the significant advice gap in Australia, Investment Trends’ latest Financial Advice Report, released in March, revealed that 11.8 million Australians have unmet advice needs, however, 9.1 million don’t plan on seeking advice, citing high (41 per cent) or unclear (30 per cent) costs as the most common barriers.
Despite 96 per cent of Australians aged 45 to 59 having contributed to a superannuation scheme, only 26.8 expect that will be their primary source of income upon retirement, according to the Australian Bureau of Statistics (ABS).
Meanwhile, 43.3 per cent of Australians are expecting to rely on a government pension or allowance as their main source of income upon retirement, highlighting an over-reliance on the state.
“As a result, fewer people are getting the advice they need to prepare for retirement effectively. Consequently, as we’ve seen, a significant number of retirees in Australia fall back on the means-tested state pension,” the report said.
GBST chief executive Robert DeDominicis explained that despite Australia implementing the Superannuation Guarantee 30 years ago, many are still struggling to save enough to fund their retirement causing them to lean more heavily on the state pension.
“Successive governments in both Australia and the UK have attempted to address the issue with regulatory change, but actual progress has been slow. It’s clear that many factors are contributing to the retirement income challenge and the solution will also be multifaceted,” DeDominicis said.
“Continued government action is certainly part of the solution and hopefully we are now seeing real momentum to effect positive change.”
DeDominicis added that there needs to be a greater level of engagement with pensions.
“Improved ‘retirement literacy’ is also crucial to ensure people make better financial decisions and achieve better financial outcomes, supported by both comprehensive, professional financial advice and providers stepping in to guide people from accumulation into decumulation,” he said.
“With rising life expectancies and an ageing population, the retirement income challenge is not going away.”
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