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Not so super: Gen Y turn a blind eye to retirement

November 24th, 2014

Almost no young Australians have a plan for their retirement, with most unlikely to even know how much they have in superannuation, according to a survey published this week by academics from the University of Melbourne.

The research project – led by law expert Ian Ramsay – surveyed 994 Australians aged between 25 and 34 and found that most respondents did not even look at their periodic super statements.

While Professor Ramsay acknowledged that young people were under many pressures and could be forgiven for not being overly focused on retirement strategies, he observed that the low levels of engagement detected by the survey were surprising.

“It’s perfectly understandable that young adults can have higher priorities at that stage of their lives, but they should be, in our view, more engaged with the choices they make in superannuation,” he said.

Industry Super Australia CEO David Whiteley said disengagement in younger life is a natural by-product of a compulsory superannuation system.

“Compulsory super is one of the most significant economic achievements in Australia, but having created 10-plus million compulsory savers what we haven’t created is 10-plus million active and engaged investors,” Mr Whiteley said.

A lack of interest between the ages of 25 and 34 is to be expected and is even “entirely rational”, he said, because young families are in “start-up phase” when more immediate matters – mortgage, HECS debt, holidays, the costs of children and more – crowd the minds of younger adults.

The system should accommodate this natural progression from carelessness in younger life to “deep concern” as retirement looms, he said.

“We estimate that eight in 10 people do not choose their own super fund – that they are defaulted into the workplace default fund,” Mr Whiteley said.

He said there should be regulations to ensure that “the default fund workers join is a fund that has a track record of strong investment performance”.

Australian Super head of external relations Stephen McMahon agreed that superannuation is unsurprisingly “not a priority” for many young people, but said that keeping a close eye on fees and consolidating multiple accounts in the early years “can make an enormous difference later” due to the nature of compound interest.

“If they get it right now it can make an enormous difference later as the money saved early on compounds over the lifetime journey,” he said.

Although the poor level of engagement was a key finding of the study, also conspicuous was the high level of disillusionment of respondents.

“Only 20 per cent of respondents told us they trusted the super industry,” Professor Ramsay said.

“We did not ask them why they felt this way, but we did detect a sense of worry among most of the respondents.

“Superannuation rules are continually changing – it’s harder to build trust in such an environment.”
Professor Ramsay said he believed the complexity of superannuation terms and rules also contributed to low trust levels. Only one-third said that reading and understanding super statements was easy.

Despite the problem of complexity, the survey also found 58 per cent of young men over-estimated their understanding of superannuation compared to 41 per cent for women.

“Overconfidence is a worry because it tells us that young people are less open to education,” Ramsay said.

According to the survey, most young adults do not understand the basics of funding their retirements, including the age at which they can begin drawing on their accounts.

The research findings confirm other recent studies, which found that systemic problems such as employers underpaying the super guarantee, were linked with a lack of engagement of workers.

The survey of 994 people aged 25-34 was conducted between December and March using an online questionnaire that was emailed to participants in all states and territories.

You can read the full New Daily article by George Lekakis here.