Greater funding flexibility plus policy and attitude changes are essential as we increasingly live decades after finishing full-time work, Actuaries Institute says.
Longevity demands ‘fresh approach to retirement’
The nature of retirement has changed and our approach to life beyond full-time work needs a fundamental rethink, according to a discussion paper by the Actuaries Institute released today.
Written by former SMSFA chairman Andrew Gale and independent superannuation adviser Stephen Huppert, it said people required targeted support in line with recommendations by the recent Quality of Advice review, as well as much greater flexibility around funding and a rethink of macro policy settings.
It said the current wave of retirees – 670,000 in the next five years – would live longer and be more active than previous generations and that demanded a different approach to how people prepared, both financially and non-financially.
“Those retirements are going to be very different from a generation or two ago,” Mr Huppert said. “Instead of retirement being a point in time and a couple of years sitting on the beach, it's now 20, 30, 40 years of quite different types of phases.”
“One of the big challenges, of course, is the financial but we're calling out that the financial and non-financial aspects need to be thought about in integrated, holistic way.
“For many people, their identity and purpose is tied up with their work and it's suddenly ‘what am I going to do with my life?’”
He said the traditional notion of a hard finish to working life at a single point in time was already out of date, with several trends showing the real picture was much more nuanced.
“A term like ‘unretirement’ now is being used where people after a few years might come back to the workforce,” Mr Huppert said. “Another term that we're starting to see is ‘encore career’ – people finding something completely different from their full-time job to do once they've retired. Or it could be volunteering, it could be mentoring, it could be looking after the grandkids or a whole combination of a lot.
“The key point is that it's not a hard finish anymore. It's not necessarily always at age 65 – it could be earlier, it could be later. ABS data shows that a lot of people – about a quarter of Australians – retire not at a point they choose, whether it's a redundancy, whether it's caring duties, whether it's through their own ill health.
“It's recognising that retirement is different for everybody and we want people to start planning and thinking about those things before the R Day happens.”
The paper, Retirement Matters, cites data showing that more than 179,000 Australians over 55 rejoined the workforce from 2019–22 and it called upon the federal government to set up a regulatory framework to enable super funds to offer suitable advice, building on the QAR recommendations and Retirement Income Review Report.
Advice would go beyond purely financial matters to tips on a broader range of topics such as healthcare needs, retirement age, paying down debt and so on.
Mr Gale said several macro issues also needed addressing to cater for the changes already underway.
“One of the things to look at is the interaction between the Social Security system and the tax system. Even with the recent changes to the work bonus, if you are entitled to or drawing an age pension you don't need to be drawing a very significant income before it starts impacting a reduction in the age pension-based income test.”
“The interaction of those two means that if you actually want to continue working at a level much beyond $30,000, for each extra dollar you're effectively losing 71c if you have an aged care pension entitlement.
“Issue number two is attitudes towards mature workers. We've made reasonable progress on issues like racism and sexism, but we need to deal with the next ism, which is ageism – and that's the attitudes of employers in particular towards mature workers. It needs a whole lot of attention.”
A third issue centred on the Intergenerational Report, which should be accompanied by a national longevity strategy to discuss the issues and what public policy was needed to encourage a healthier attitude towards the mature population.
One central recommendation of the discussion paper involved moving away from the official “Three Pillars” of retirement funding – the aged pension, superannuation and voluntary savings – to take in other sources such as home equity and part-time work.
Mr Gale said longevity was a plus but it was also the most significant risk for people in their mature years because of the uncertainty.
“As a consequence, in many cases they end up spending less than they can actually afford and that leads to a degree of frugality,” he said.
“There are innovative retirement products in the market which partly address that issue, but also this approach of shifting from three pillars to five pillars.
“Home equity for the right sort of people makes sense. You can access up to 25-30 per cent of the equity in your home. You don't need to move out of home but you get some additional income.
“Again, you probably need to work through some of the public policy settings to encourage it even more, but this is the conversation we think we need to have.”
They said the superannuation system was doing a good job, reducing pressure on the aged pension, but it was never intended to be the sole source of retirement income.