As the Super Guarantee generation approaches or navigates retirement, one in four have no plan to draw down their super and very few are using their housing equity to improve their retirement.
As well as the 25 per cent not touching their super, only 2 per cent of the 81 per cent of people who own their home have accessed the equity in their home with a reverse mortgage.
The findings, from a survey of about 3000 respondents by National Seniors and investment management firm Challenger, are being attributed to a number of factors: a fear that the Age Pension will not exist, a love of home ownership, complexity of the system, aged care and medical costs and a lifetime of being encouraged to save as much as possible.
Read: Why are older Australians delaying retirement?
The survey found that only 2 per cent of retirees had accessed their home equity, while around two in three said it is important to leave their home as a bequest .
Around 80 per cent of retirees owned their home outright while 11 per cent still have a mortgage, or reverse mortgage.
Challenger’s former retirement income chairman, Jeremy Cooper (he stepped down from the role at the end of August), said: “Fear of running out of money during retirement drives many retirees to ‘hoard’ their savings, rather than spending them to enjoy a higher standard of living.”
And a Treasury report backs that up with a statement that older Australians are living an “unnecessarily frugal” lifestyle
“Most people die with the bulk of the wealth they had at retirement intact,” the Treasury report says.
“Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement.”
Read: Is adjusting to retirement easier for men or women?
The report says the rules of income and investment confuse many older Australians.
An independent review of the superannuation system commissioned by the government in 2019 found that: “Complexity, misconceptions and low financial literacy have resulted in people not adequately planning for their retirement or making the most of their assets when in retirement.”
The Treasury report says: “Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income.”
This reluctance to spend prompted the government to develop the Retirement Income Covenant (RIC), which mandates that superannuation funds must now design and tailor retirement income strategies for members moving to or in the pension phase.
It requires trustees to formulate and regularly review strategies aimed at maximising retirement income while managing expected risks.
People are also concerned about health costs as they age.
Challenger’s head of retirement income research, Aaron Minney, told the Australian Financial Review that the majority of respondents – 84 per cent – wanted to hang on to some of their super for aged care and medical costs.
Read: New retirement income tool aimed at helping you save
“So it’s all this uncertainty of the future that is really driving the concerns in their mind in terms of why they need to hang on to their money,” Mr Minney said.
And Australians love their homes. While it might make financial sense to downsize or access the equity in their homes, the survey found that 67 per cent of respondents wanted to pass the family home on to beneficiaries and a majority wanted to own their home at the expense of bigger super balances.
The super guarantee is celebrating its 30th birthday this year. It was introduced in 1992 with a mandatory three per cent contribution rate, requiring employers to contribute to a super fund on their employees behalf. This rate was gradually increased to the current rate of 10.5 per cent. It is set to rise again to 11 per cent on 1 July 2023.
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