We have recently completed research which captures specific retiree attitudes and issues in the Australian marketplace. A key conclusion from this research is the difference between individual attitudes during the accumulation phase compared to retirement.
Members are invested generically in the accumulation phase, often in a default fund, and receive broadly equivalent service and returns. On the contrary, member attitudes immediately leading up to and post retirement become far more related to their unique circumstances: their superannuation account balance, contribution rate, planned retirement age, outstanding mortgage(s), number of children, current and desired lifestyle, level of assets invested outside of superannuation and many other individual circumstances.
Insights and learning from this Russell research include the following:
1) PEOPLE DO NOT DISSOCIATE THEIR FINANCES FROM THE OTHER ASPECTS OF GROWING OLDER, AND BENEATH THE EXCITEMENT OF RETIREMENT, THERE IS ANXIETY
The word 'retirement' conjures up a lot of different emotions in people and everyone is unique, but there are sufficient themes to make some general comments. As consumers, pre-retirees can visualise pleasant images, and existing retirees can ably point out things they like about not working - but by and large most individuals are scared about aspects of the future.
2) MANY CONSUMERS ARE OVERWHELMED BY UNCERTAINTIES, WHICH PREVENT THEM FROM TAKING ACTION
The majority of higher socio-economic consumers have a higher confidence level in their ability to face retirement and can see themselves taking actions that may help their situation. In contrast, many lower socio-economic consumers are so overwhelmed by the prospect of being responsible for their own retirement they fall into a state of utter inaction.
3) CONSUMERS IN ALL SOCIO-ECONOMIC GROUPS WELCOME HELP FROM THEIR FUND
Proactive contact from the fund can be a polarising issue - people either hate it or love it. However, the one area where proactive contact is always welcome is around preparing for retirement.
4) MARKET RISK IS STILL MORE IMPORTANT TO CONSUMERS THAN LONGEVITY RISK
Consumers are not really absorbing the gravity of statistics like, 'one in every three men retiring at age 65 will live into their nineties' (source: ABS). Within financial services, we know the risk of people outliving their money is a very real threat to their financial security (and hence the economic prosperity of the nation). But consumers are a way-off catching onto this notion. They struggle to imagine living beyond age 75, let alone into their 80s or 90s. They are, however, consumed by the risk of market downturns. Market risk is very real to them because they have experienced it, sometimes multiple times. Because longevity risk can only be experienced by actually outliving one's savings, and they haven't lived through that experience yet, they downplay its threat. Many expect to run out of money due to market downturns long before they reach anything resembling a 'life expectancy'.
5) TURNING 50 IS A WATERSHED MOMENT FOR CONSUMERS
It seems that age 50 is somewhat of a reality check age for most people. For whatever reason, people attach special significance to this birthday. People reported feeling a jolt to the senses around their financial affairs, as well as their health and mortality. People at this age are often taking stock of their lives, wondering if they're doing enough to ensure financial security and how long they might be able to keep working at the pace they are accustomed to.
6) CONSUMERS HATE THE NOTION OF LOCKING THEIR MONEY UP
It is well-documented in the existing literature, and confirmed by Russell’s Australian research, that consumers are resistant to the idea of handing over a lump sum of money, even if it means greater certainty in the long run. The removal a few years ago of preferential Centrelink testing for 'locked up' products only served to compound this. The only way people could foresee having any kind of risk protection in place was to pay for it bit by bit over time. That way, if anything changed, they hadn't committed a big chunk of cash (or didn't perceive to have committed a big chunk).
7) HIGHER SOCIO-ECONOMIC CONSUMERS WANT HELP FROM THEIR ADVISER AND SEE THEM AS PARTNERS AND SOUNDING BOARDS
People who have a relationship with an adviser find it easier to see how the adviser adds value and are keen to chat with them, but still see the ultimate decision resting with them. They see their adviser as a guide, someone to toss ideas about with, but not the one in control of what to do in a crisis. Conversely, the bulk of the population does not have an adviser and seems to want help from their fund.
8) CONSUMERS ARE CONTENT/HUNGRY FOR THEIR FUND TO BE A ONE-STOP SHOP OF SERVICES AND SOLUTIONS
Consumers acknowledge that help and advice on financial matters can come from a variety of sources, including advisers, accountants and super funds. However, consumers do not readily detach their thoughts about privately saved finances from the other aspects of ageing, such as health, aged care, adjusting to a new lifestyle, and interacting with social security agencies. In this respect, they do not view advisers and accountants as viable sources of help. However, they very much like the idea of a one-stop shop for help around a broad range of retirement and lifestyle issues. They are quite content for this role to be played by their super fund.
9) PLAIN ENGLISH AND TRANSPARENCY ARE CRITICAL FOR TRUST AND LOYALTY
There has been progress in the last two decades around getting people to understand the importance of super, but the details are still overwhelming and confusing for the bulk of consumers. They are still looking for a provider to speak to them in the same fashion they speak to one another - in ordinary language without too many 'funny' terms and acronyms.
Transparency is about making it easy for people to see what they're getting for their money. Where fees are bundled, it needs to be clear to people what collection of services or features they are getting for the price. They don't expect to get something for nothing, but will sometimes want the option of opting into extra services and features (or opting out of them) to suit what they hold most important. They want choices so they can feel comfortable with what they're getting.
10) FEAR OF LOSING MONEY IS A MORE POWERFUL EMOTION TO CONSUMERS THAN THE APPETITE FOR GROWTH
Consumers are far more interested in protecting their capital than pursuing the thrill of market rallies. The level of emotion they feel from a 10% positive return does not correlate with the fear of losing 10%. They feel the loss a great deal more.
11) FEES REMAIN AN AREA OF SCRUTINY
Consumers and advisers alike both proactively reference fees without prompting when speaking about products and services. Both are very conscious of fees when assessing potential offerings. Advisers speak of the relatively high cost of annuities, referencing how fee conscious their clients are. Even consumers, scared of market losses, are not willing to pay anything to avoid such uncertainty. They indicate a willingness to pay a little extra for products that could protect them from account balance losses or income fluctuations, but not a great deal more.
12) CONSUMERS ARE MORE LIKELY TO WANT TO PAY A ONE-OFF FEE FOR SERVICES, BUT LOATHE LUMP SUM PAYMENTS FOR PRODUCT-RELATED FEATURES
For services such as advice or special training courses, consumers are comfortable paying a one-off, non-repeatable fee. They don't like the idea of inbuilt or bundled fees for services they may or may not use, and they are not comfortable with paying ongoing fees, particularly when it comes to advice, which they do not view as something they received on an ongoing basis but rather at a moment in time. However, when it comes to product features such as longevity or capital insurance, they are strongly opposed to paying a one-off fee. They are open to opting into (or even opting out of) such features if they could pay 'along the way', something like $1 a week.
13) AGED CARE IS AN AREA CONSUMERS BELIEVE IS LACKING INFORMATION AND HELP, AND IS MORE MYSTERIOUS TO THEM THAN SUPERANNUATION
Consumers' thoughts about ageing are inextricably linked to aspects not directly related to super savings. They are wondering:
- how long they and their partner can keep working
- whether they'll need to put elderly parents in appropriate aged care accommodation
- whether lumpy health care costs will catch them by surprise in future years
- whether they'll feel bored or isolated in retirement
- if they're entitled to social security
- if they'll be able to undertake all their wish-list activities, such as travel and self-development.
Aged care in particular presents a great mystery to people. They do not understand the difference between nursing homes and retirement villages, options and restrictions around paying for placements in such accommodation, and whether medical care, if required, is available either at their current home or at one of these specially created facilities.
Consumers find the issue of accommodation for seniors bewildering. They are looking for someone to provide them with a one-stop-shop of information on all things ageing related. The issue of aged care resonated highly with consumers. They are quite open to their super fund playing the role of specialist around all things ageing-related.
14) PRE-RETIREES AND EARLY RETIREES ARE MORE CONCERNED WITH CAPITAL PROTECTION THAN INCOME PROTECTION
Consumers in the 'retirement risk zone' are instinctively more concerned with protecting their capital than guaranteeing their income payments. (The retirement risk zone is the years leading up to retirement and immediately following retirement, where market losses are most deeply felt and difficult to recover from). Consumers that have been retired for some time (in our research over 10 years) begin to turn their attention to steadiness of income payments, and become more acutely aware of the need for regular income. However for those who have recently retired or are preparing to retire, it is all about the capital.
15) THERE IS A NEW TREND AWAY FROM FINANCIAL BEQUESTS TO CHILDREN
The generation above Baby Boomers may still be working toward financial bequests to their adult children, but Boomers do not appear to be leaning this way at all. The Boomers have been spared depressions and world war, but they worked hard for what they have and want to enjoy it. They see retirement as their time to spend and enjoy. They see the legacy they can pass their children is the house. Boomers acknowledge that property ownership is harder to get a foothold for their children and want to see the real estate pass to their offspring, but they are not picturing leftover pension savings to be passed on.
16) CONSUMERS GRIMACE AT THE THOUGHT OF LIVING OFF THE AGE PENSION, BUT MANY ARE FACTORING IT INTO THEIR THINKING NONETHELESS
Consumers are in agreement that the Government Age Pension will not provide them the retirement lifestyle they are seeking, and indeed some are even cynical that it will exist much longer! All are in agreement social security is not being planned for and that 'if you're not self-sufficient, you're going to be in trouble'. When asked if they would like help working out if they were eligible for a part pension, or any other social security entitlements, they are vigorously in agreement that it is a need and want.
17) LOVE AFFAIR WITH BRICKS AND MORTAR SOLID AS EVER
Regardless, of whether the mathematics of direct real estate investing stacks up over time against super's concessionally-taxed environment. There's no denying that Australians still have an ongoing love affair with property. Consumers in all socio-economic groups refer to the attractiveness of property. They make direct comparison between investing in super and investing in property.
18) THERE IS NO ONE-SIZE-FITS-ALL SOLUTION
We can make some general comments about the mood in the marketplace and statements that we believe largely represent segments of the customer base. However it is also clear that the issue of retirement funding is not clear-cut and cannot truly be solved by a single product or service. Consumers' value flexibility and choice, and advisers then by necessity need access to a range of solutions in order to cater to the preferences of those consumers.
This research is an extract from a longer paper by Russell Research titled, ‘Retirement Solutions 1: Gaps in the state of the art.” Reproduced with permission of Russell Investments.