One of the key strategic priorities outlined in ASIC’s 2023-27 corporate plan is to “protect consumers, especially as they plan and make decisions for retirement, with a focus on superannuation products, managed investments and financial advice”.
The regulator of corporate conduct, alongside prudential regulator APRA, is going to have its work cut out as growing numbers of Australians transition into retirement and face the prospect of living to a greater or lesser degree on the savings they’ve accumulated during their working lives. Many of them are going to look for advice and guidance on how to make the most of what they have.
The Australian Bureau of Statistics says there were 4.1 million Australians in retirement at the end of the 2020-21 financial year (its latest figures). The ABS says around 140,000 people retired in 2020 alone, and almost 158,000 intend to retire in 2023.
It’s generally reckoned that that there simply aren’t enough financial advisers to deliver advice to everyone who needs it as they retire. There were around 15,700 advisers as at October 19 this year, according to Adviser Ratings.
If it’s true that around one in five Australians use financial advice, then advisers would be serving an average of 260 clients each from this retiree cohort alone – and clearly they’re not; that figure is significantly greater than the 130 to 140 or so clients an adviser typically handles.
And if 158,000 people retire in 2023, and 20 per cent of them also seek professional advice, that’s an additional two clients per adviser per year for an advice community that’s already pretty well full. The financial advice profession is neither structured nor equipped to deliver advice to every Australian in retirement or nearing retiring who wants it.
Other providers will step into the breach, and the clear focus is on superannuation funds. Some funds will offer advice well, some will offer it less well. Some are being dragged kicking and screaming towards doing anything at all. ASIC and APRA will need to be on their toes to make sure the services and products ultimately delivered to members are up to scratch and serve a useful purpose.
The regulators jointly gave the industry another significant reminder that they expect it to do a lot better on the retirement income front, telling a recent superannuation executives roundtable that funds still have a long way to go to adequately address the needs of their members as they retire.
Retirement ain’t all sunsets
Quite apart from the numbers of people in and nearing the end of their working lives, retirement isn’t always a straightforward proposition for many people. It’s tempting to think that the typical path through life is to get a job, remain employed for a few decades and then ride off into the sunset at a time of our choosing. A significant proportion of people can’t choose the exact timing of their retirement and there are a number of reasons for this, including redundancy, ill-health, accidents and injuries, and dropping out of the workforce to care for a family member or partner.
The ABS says the average intended retirement age for most people is 65.5 years but that the average actual retirement age is 56.3 years. If we assume that retiring at 65 is something people put a bit of thought into, it means the average person is retiring almost 10 years earlier than they planned. And that generates some crunchy financial planning issues.
The last 10 years of someone’s working life is when a very significant proportion of their final superannuation account balance is generated – compound interest sees to that. If you take away 10 years of contributions and earnings, and then add 10 years to the time that their retirement savings need to last, the potential magnitude of the problem that financial advice might be asked to address becomes clear.
Making less savings last longer can really only be achieved by accepting a lower income in retirement and adjusting lifestyle expectations accordingly. That can be a big psychological shock to the individuals concerned and can severely affect the satisfaction an individual experiences with their retirement.
Figures produced by CoreData Research have consistently shown that where the narrower the gap between the expectations of retirement and the reality of it, the greater a retiree’s satisfaction tends to be.
It doesn’t matter so much what the individual’s account balance is; if they approach retirement knowing broadly what to expect they tend to be OK with it. Where there’s a big disconnect between the expectation and the reality, satisfaction tends to be lower.
There are other indicators of satisfaction as well, including owning a home in retirement and having a relationship with a financial adviser – whose role is not only as a financial engineer and expert but as an expectations manager as well.
This is partly why it’s so important the retirement advice or guidance ultimately delivered at scale by super funds is sound. The way funds manage their members’ transition to retirement will play a big part in how happy and satisfied those members are in retirement, irrespective of the account balances they’ve managed to accumulate.
Happy and satisfied retirees will support the legitimacy and whatever is the finally legislated purpose of superannuation.
But masses of unhappy, dissatisfied retirees, who didn’t fully understand what their superannuation would provide for them in retirement, will tend to undermine it. As the presumed providers of retirement advice and guidance to the masses, super funds really need to get this right. ASIC and APRA are correct to be on their case.