The pandemic caused by COVID-19 and the events of 2020 might mean that superannuation fund members will need to keep working anywhere between two and eight years longer before retiring, according to Willis Towers Watson’s research.
The study, which looked at COVID-related factors beyond the early release scheme to include investment returns and unemployment, found that COVID-19 and the associated shutdown would affect individuals differently depending on their personal circumstances and actions.
At the same time, the current situation created opportunity for funds to increase engagement with members more strongly than previously through accessing early release payments.
According to Willis Towers Watson Head of Retirement Solutions, Nick Callil, some members, particularly higher earners, may choose to retire with a slightly lower retirement income if they are able to maintain their desired lifestyle with the funds available to them. But for others, the most obvious action may be to contribute more by way of voluntary member contributions.
However, at a time when unemployment was projected to reach its highest level since the Great Depression, many members would not have the ability or inclination to use available income to support additional contributions even where the need is recognised.
“Those who are unable or unwilling to make additional contributions may be forced to work past their preferred retirement age – if such an option is available to them. Clearly, for those approaching retirement, this approach may not be feasible with an additional working life of up to eight years required to achieve pre COVID-19 adequacy levels,” he said.
Following this, those in the low earnings band showed the least absolute reduction across the board, due to overall retirement income being bolstered by the government Age Pension.
“While the proportion of members that switch to cash is still reasonably small across the industry, the analysis demonstrates that it can be very damaging and is particularly acute for older members, reflecting the impact of investment returns in the ‘retirement risk zone’ in the years immediately preceding and after retirement date,” Callil said.
“Funds need to understand their membership, what their projected retirement adequacy looks like, and how it has changed through this tumultuous time.”
