Nearly half of retirees have awareness of lifetime income solutions yet lack specific comprehension about how they work, according to new research.
A recent report from Allianz Retire+ surveying 827 pre- and post-retirees examined current attitudes towards retirement.
It discovered that while 49 per cent of respondents have heard of lifetime income streams, they are uninformed on the specifics of how they operate.
Some 30 per cent are aware and familiar with these products and just 4 per cent hold a lifetime annuity. On the other end of the spectrum, 11 per cent are completely unaware and unfamiliar with them, and 6 per cent are unsure.
Earlier this year, the Financial Advice Association Australia (FAAA) discussed how to make lifetime income products more accessible, which starts with greater education.
“Australians largely do not understand the issues involved in the provision of these products (longevity risk, sequencing risk, etc), nor do they understand how they work or whether they would be beneficial for them. The lack of understanding limits demand and the appetite to invest in them,” it wrote in a submission to Treasury on the retirement phase of superannuation consultation.
“This general lack of knowledge means that they are often confused, ill-prepared for retirement and unlikely to consider products that essentially reduce access to their funds as a retirement solution.”
While APRA has been encouraging super funds and providers to develop retirement products under the Retirement Income Covenant (RIC), a Deloitte report previously argued that all these different products are causing confusion.
The Allianz Retire+ research also found that while the majority of survey respondents indicate awareness of annuities, only 17 percent said they would consider using them as a source of retirement income.
“However, 59 per cent indicated they would ‘maybe’ consider them as a source of income in retirement, which suggests that with education, this evolving product category could be more appealing to consumers than the annuities of the past.”
For the 24 per cent who responded “no” to considering the use of annuities, the main reasons are lack of access to money (44 per cent), worries about death benefits (39 per cent), not knowing where to get information on them (31 per cent), and inflexibility (31 per cent).
The findings underscore the importance of financial advisers in helping retirees understand their options in retirement planning.
With retirees finding themselves “asset rich, cash poor”, Andrew Boal, partner in Deloitte’s superannuation and investment practice, encouraged retirees to think of their home as a key financial asset that can provide income in retirement versus as a nest egg or an asset for their children to inherit.
