COVID-19 forcing quarter of working Australians to delay retirement plans: Colonial First State survey

COVID-19 forcing quarter of working Australians to delay retirement plans: Colonial First State survey

Nearly a quarter of Australians aged 30-65 say COVID-19 is forcing them to push back their retirement, new Colonial First State research showed.

For many working Australians, COVID-19 has been a reminder on the importance of retirement planning. Of the more than 1000 surveyed by Colonial First State in June, 45 per cent said they were “scared” or did not feel financially confident about retiring.

Those aged 35-49 were the most financially underprepared for retirement, while Australians aged 55-plus were more confident that they are on track with their retirement plans. Kelly Power, Colonial First State’s general manager of product, attributed this to the relatively lower level of savings younger people have.

“Younger Australians who still have time before retirement are feeling more anxious about retiring than their older counterparts because they’re still building up their savings pool while the reality of retirement costs start sinking in,” she said.

Women facing financial disadvantage, affecting retirement plans

The study also found that women are bearing the brunt of COVID-19 impacts on retirement plans, with a third of women indicating they do not feel confident about retiring, compared with a quarter of men. This is mainly due to the impacts of the pandemic, which has reduced how much Australians are able to save.

A third of women admitted that their superannuation was the only investment portfolio they held, which may mean they could retire with less wealth. This is compared with 17 per cent of men relying solely on superannuation for investments. 

Ms Power said this could be a real financial disadvantage for women come retirement. 

“It was an issue before the current crisis, and it will be an even bigger problem when we emerge from the recession,” she said.

Female workers aged below 35 held a superannuation pool of $53.5 billion in 2017-18, while male earners had $69.8 billion, according to the Australian Superannuation Funds of Australia.

Super fund HESTA found that the majority of those who accessed their super due to COVID-19 impacts were women, with many being lower-income earners. 

COVID-19 a financial “wake up call” for working Aussies

Ms Power said the pandemic has created financially challenging circumstances for many people.

“It has been a big wake up call for those Australians in their prime working age regarding their employment, savings, expenses, investments and super, and many have been forced to get a better grasp of their finances,” she said.

About a third of Australians indicated that they are saving less than usual, due to a loss of income, as well as an increase in bills. Half of survey respondents intend to cut back on spending and manage their budget more closely.

More than four million workers pulled $30.3 billion out of their super due to the financial impacts of COVID-19 since late April, the latest Australian Prudential Regulation Authority (APRA) figures showed.

Some who are relying heavily on their retirement savings to get by have applied to access their super for a second time. About 1.1 million have asked to withdraw from their super twice, with these repeat applications totalling $9.4 billion. 

And in the week to August 2 alone, nearly 140,000 applicants requested to access more than $1 billion in super funds.

“We know that there have been a lot of Australians needing to access their super early as a way of surviving income loss, but either way super has become a more important topic of discussion in Australian households,” Ms Power said.

If you’re concerned about how much you could be left with when you retire, it could be worth understanding how much you’ll need to live comfortably after retirement. The number is going to be different for everyone, depending on your financial circumstances, working status, lifestyle and age. Consider speaking to a financial planner for advice on retirement planning, or use a calculator to help you work this out. 

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Learn more about superannuation

How much superannuation should I have?

The amount of superannuation you need to have at retirement is based on how much money you would expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

When can I access my superannuation?

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age – which is different to the pension age – is based on date of birth. Here are the six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

A transition to retirement allows you to continue working while accessing up to 10 per cent of the money in your superannuation account at the start of each financial year.

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

 

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

Am I entitled to superannuation if I'm a casual employee?

As a casual employee, you’re entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

Am I entitled to superannuation if I'm a part-time employee?

As a part-time employee, you’re entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

How do I combine several superannuation accounts into one account?

The process used to consolidate several superannuation accounts into one is the same process used to change superannuation funds. This can be done through your MyGov account or by filling out a rollover form and sending it to your chosen fund.

Who can open a superannuation account?

Superannuation accounts can be opened by Australians, permanent residents and temporary residents. You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.