Retirement confidence wanes amid annuities jump

The 2023 edition of State Street Global Advisors’ Global Retirement Reality Report found the confidence of Australians in their pre-retirement savings has declined from the previous year’s survey.

Of the 608 Australian respondents to the 2023 survey, 20 per cent of them said they expect they will have saved enough to retire (down five per cent from 2022), 14 per cent said they don’t believe they will be financially secure enough to retire (up four per cent from 2022), 50 per cent said they have no confidence they will retire when they plan to (up 10 per cent from 2022), and 46 per cent are not confident they will be financially prepared when they plan to stop working (up 5 per cent from 2022).

The survey also showed the top three issues affecting their confidence in their preparedness to retire when planned were inflation and the cost-of-living crisis (73 per cent), mortgage debt and rent and housing costs (38 per cent) and medical expenses (35 per cent).

These three factors came out on top ahead of worrying about spare money for savings, the complexity of Australia’s superannuation and pension system, and a lack of trust in super. These results suggest that the lack of confidence in Australian retirement plans is due to the current economic conditions rather than perceived systemic failures.

The survey results also found that Australia may be experiencing a turning point when it comes to annuities, a retirement income product that has been long resisted by Australian pre-retirees and retirees.

“In the 2023 survey, we saw encouraging signs that annuities may have turned the corner in Australia. Acceptance of some of the stereotypical negative statements about annuities has softened since 2022,” State Street said in its survey report.

“It isn’t clear whether this softening is due to higher interest rates, or education or some other factor, but it does augur well for trustees looking to include longevity products in holistic retirement solutions.”

Compared to the 2022 survey, the number of respondents who agreed that annuities don’t represent good value for money declined by 13 per cent to 16 per cent; 24 per cent of respondents agreed that annuities have a bad reputation due to their limiting access to savings compared to 2022’s 33 per cent; and 44 per cent said they were unsure of how an annuity works, down 13 per cent from 2022.

“We even saw an uptick in respondents who included annuities in their definitions of ‘Retirement Income”,” State Street’s report said.

“Eighteen per cent of respondents in 2023 selected “An annuity that provides a guaranteed income stream for the rest of my life” compared to 12% in 2022.”