Retirees report they are feeling worse off.

The retirement experience of retirees has declined in 2022, pointing to an austere outlook for the growing number of Australian retirees transitioning into retirement.

CoreData’s Best Possible Retirement (BPR) Index has recorded a three point decline in 12 months, from 56 to 53 out of 100, attributable mostly to the decline in retiree satisfaction where the number of retirees not satisfied increased by 9% to one in three.

This satisfaction deteriorated more significantly in later stages of retirement with 39% of those who retired more than ten years ago, reporting they were not satisfied. Further, irrespective of how long retirees had been in retirement, satisfaction all but disappeared to 1-2% in 2022.

Meanwhile, Australians have given small funds a slightly better BPR Index than the industry sector, with both sectors scoring equal scores for retirement satisfaction (61), confidence and comfort (63) and financial discipline (62) but small funds outperforming on the retirement experience indice by one point (small funds 61 versus industry sector 60).

CoreData Founder Andrew Inwood said the BPR Index findings were disappointing and reflected the urgency and leadership needed to develop retirement solutions and outcomes that are not reliant on market performance and returns.

“How Australians retire should not be determined by when they retire and what cycle the market is in, but rather draw on a range of consistent and reliable determinants which give Australians confidence and peace of mind in retirement.”

Retirees are living the nightmare

Retirees report they are feeling worse off, up 8% from 19% in 2021 to 27% in 2022.  Further, more than 30% (32%) say they are spending less than in 2021 and less retirees are confident they will have sufficient savings to last the rest of their life, with those confident falling form 35% in 2021 to 29% in 2022.

CoreData’s BPR Index collected data from more than 5,900 Australians to score Retirement Preparedness (If still in the workforce) and Retirement Satisfaction (If retired) to produce an index between 0-100 – to devise a measure of Australian’s Best Possible Retirement. The third iteration of CoreData’s BPR Index, it allows us to compare the retirement success/preparedness of different consumers and understand what drives that ultimate feeling of retirement success and preparedness.

Other key findings on retirees from the BPR Index Report include:

• Retirement experience has fallen by three points while confidence in future financial security has fallen with less than one in three sure of having enough funds to last their lifetime.
• Retirement satisfaction components continued to decline in confidence and comfort (57%) driven by a 9% decrease in the ability to vision the future and a 2% fall in conscious competence (this refers to confidence in making financial choices).
• Financial discipline also declined, down by 10% with a fall in risk management by 12% a strong driver of this closely followed by financial control and planning, both down 9%.

Pre-retirees not much better off

In the case of pre-retirees, preparedness for retirement has been in steady decline since it began being measured in 2020 with a 6% increase in those not well prepared (41% in 2021 to 47% in 2022) and just 14% regarding themselves as quite well prepared to well prepared.

These stats are worse for women, with less than one in ten women now well prepared. Further, of those Australian with less than five years to retirement, one in three remain not well prepared.

Other key findings on pre-retirees from the BPR Index Report include

• Confidence and comfort measures declined from 2021 where 56% of pre-retirees said they would have enough money to live well, dropping to 52% in 2022.
• There was similar declines in measures on visioning the future including a 4% decrease in whether they were happy with the direction their life was taking from 2021 to 2022, and a 5% reduction in whether they were more optimistic than pessimistic about the future.
• Financial discipline also continued to decline, strongly driven by a 10 point drop in risk management. There was decline in both the percentages of pre-retirees who could continue their current lifestyle without earning an income for less than six months, up from 42% in 2021 to 49% in 2022.

Most satisfying fund sectors

Small is best when it comes to performing well in the BPR Index, with small funds just outperforming the industry sector. Both sectors scored equal scores for retirement satisfaction (61), confidence and comfort (63) and financial discipline (62) but small funds outperformed in the retirement experience indice by one point ( small funds 61 versus industry sector 60).

Meanwhile, for pre-retirees, retail sector funds performed best across all indices including preparedness for retirement (56) , confidence and comfort (53) and financial discipline (60), followed by small funds which came in equal second place with industry sector funds with scores of 54,53 and 55 respectively.

Sample and Methodology

From March to April 2022, CoreData spoke to over 5,900 Australians over the age of 45 via an online survey instrument representing approximately 3,300 pre-retirees, and 2,500 retirees. Respondents were asked a series of questions to gain quantitative insight into a range of attitudinal and behavioural factors including confidence and comfort, financial discipline and retirement experience. This data was then used to score Retirement Preparedness (If still in the workforce) and Retirement Satisfaction (If retired) and to produce an index between 0-100 to provide a measure of Australian’s Best Possible Retirement.

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Nineteen super funds say they are finding getting ready for the RIC challenging – but they are stepping up to the challenge.

With the 1 July 2022 deadline fast approaching, a survey of 19 super funds shows that they are finding getting ready for the RIC challenging – but that they are stepping up to the challenge. Australian super funds will need to publish a retirement income strategy before the deadline to comply with the new legislation.

CoreData conducted a research survey and interviews to assess super funds’ readiness to meet the deadline and requirements of RIC legislation. The research, commissioned by Challenger, consisted of one-on-one interviews and quantitative surveys conducted with 43 professionals working at 19 super funds.

The June 2022 report, drawing on key findings from the research, suggests super funds believe they are well-prepared to meet their RIC obligations. However, while senior executives in the majority of super funds believe they have a well-articulated strategy to comply with the RIC, product managers and those responsible for executing the strategy plans in these organisations have a lower awareness of this strategy or are not so sure their fund is ready.

Leaders are also divided on how to operationalise their strategy – half are expecting to further develop their internal capability while two in five are seeking solutions from partners/providers to help plug gaps in their knowledge base (such as institutional term annuities and the decumulation investment mandate).

However, it is longevity solutions for managing longevity risk – the risk of running out of savings during retirement – that top the list for super funds needing expert support. At 89%, demand is twice as high as any other gap in the solutions funds need to support their RIC rollout. Two in three funds said they will outsource longevity risk to third parties while one in four funds did not know if they would do this.

CoreData Global CEO Andrew Inwood welcomed super funds’ interest in expert support for managing longevity risk for their members. “What’s unique about longevity risk is that it’s specific to retirees and needs a specific solution. Managing investment strategy is only part of the answer; it will not solve longevity risk.

“The internal capability a super fund needs to implement a longevity solution or mitigate longevity risk is considerable in terms of their operational capability and liability management.”

“Partnering with an expert will enable a fund to bring a compliant, fit-for-purpose retirement income product to market quickly with fewer internal resources dedicated to longevity protection.”

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