That’s according to research by global advisory, broking and solutions company Willis Towers Watson. The research, Impact of COVID-19 on Retirement Adequacy looked at COVID-19-related factors beyond the Early Release scheme to include investment returns, switching behaviour and unemployment.
Not surprisingly, it’s projected that 2020 will have a negative impact on the retirement outcomes for many Australians.
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.
For others, the most obvious action may be to contribute more through voluntary member contributions.
However, at a time where unemployment is projected to reach its highest rate since the great depression, many superannuation fund members will 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,” the report stated.
“This approach may not be feasible with an additional working life of up to eight years required to achieve pre COVID-19 adequacy levels.”
Low income earners show the least absolute reduction across the board, due to overall retirement income being bolstered by the government and the Age Pension.
Switching (changing investment options) has the greatest adverse impact, according to the report.
Throughout March and April 2020, many funds reported members shifting to cash and low growth investment options in response to the market downturn.
While the proportion of members that switch to cash is still reasonably small across the industry, the analysis demonstrates that it can be damaging.
This is particularly true for older members, reflecting the impact of investment returns in the ‘retirement risk zone’ in the years immediately preceding and after retirement
The special provision allowing the release of up to $20,000 (two payments tranches of up to $10,000) from superannuation accounts was introduced as a pandemic stimulus measure.
Over $30 billion had been released by 16 August by over a million individuals.
The impact of early release is higher for younger members. The exception is those with a low earnings base and account balance, where withdrawals are significantly less than the full $20,000.
Younger members are also most impacted by periods of unemployment, with lost income in the early years equating to the largest differences at retirement. This is due to the powerful force of compound interest.