Pre-retirees underestimate how likely they are to rely on the Age Pension, research from Investment Trends has found.
The research, from the firm’s 2024 ‘Super Member Engagement’ report, found pre-retirees have estimated social security entitlements, such as the government Age Pension, to make up 12 per cent of retirement funding, much lower than the reality experienced by retirees (23 per cent).
However, pre-retirees expect superannuation to contribute 30 per cent of their retirement funding, in line with the actual reality of retirees (29 per cent).
The findings highlight the importance of the superannuation system for current and future retirees due to the differing expectations for other retirement income streams.
Savings and investments outside of superannuation are estimated by pre-retirees to make up 20 per cent of retirement funding. In reality, this contributes 13 per cent to retirement income.
This disparity between expectations and reality is the result of a lack of knowledge about all retirement income streams and avenues, the research found.
Two years after the introduction of the Retirement Income Covenant, Investment Trends said the research showed super funds have the opportunity to take a more active role in equipping pre-retirees with the knowledge they need to be better prepared for retirement.
Investment Trends head of research Irene Guiamatsia said this could include providing information on how superannuation interacts with social security, as an example.
“Understanding how different income sources come into play can help pre-retirees to take action now to maximise their retirement income in the future,” Guiamatsia said in a media release.
ASIC, APRA and the Government have sounded the alarm over lack of progress made on the covenant, and two years later are still underwhelmed by the collective industry response.
The covenant was a response to concerns the super industry did not have sufficient retirement products in place for members in drawdown phase and required funds to have a retirement income strategy that included drawdowns from the fund, Age Pension payments and any other income the trustee determines is appropriate.
However, research from the Association of Superannuation Funds of Australia released this week has dismissed the notion the super sector disproportionately focuses on accumulation over decumulation.
The association’s ‘Update on superannuation account balances’ found there was 231 retirement products covering 1.27 million retirement accounts and 61,000 transition to retirement accounts, based on APRA data.
The average member balance in the retirement accounts was $355,000.
