Downsizing not on the radar for most retirees: AMP

AMP chief executive Alexis George says policymakers should look at incentives that affect whether retirees downsize their homes, as part of a wider push to help people in retirement spend more of the wealth they have amassed in their working lives.

George also underlined the importance of financial literacy for improving retirement outcomes, and said super funds also could assist by providing lower-cost financial advice – a change the government is putting in place.

AMP CEO Alexis George: “They’re just worried about that money running out, and as a consequence, they’re not enjoying their retirement as much as they could.”Credit: Aaron Francis

George’s comments came as new research from AMP found retirees face a growing dilemma: they want to help their children with challenges such as the high cost of housing, but also worry about being able to support themselves during retirement.

People aged over 60 are set to pass on about $3.5 trillion to the next generation over the next two decades, according to previous forecasts. AMP’s survey of 2000 people dealt with attitudes to intergenerational wealth transfer, including regarding the family home, the biggest asset for many people.

It suggested downsizing – one way to tap into the wealth in the family home – is not a priority for many. Four out of five respondents aged over 65 were not prepared to downsize their family home to free up wealth that they could pass on to their children.

Governments have long tried to encourage retirees to spend more of their wealth – including through rules that allow retirees who downsize to put part of the proceeds into their super account, and through pushing super funds to focus on retirement incomes.

When asked what governments could do to help retirees deal with the dilemma in AMP’s survey, including unlocking their home equity, George said they could try to improve financial literacy. Further, they could allow super funds to give more financial advice, including on “guaranteed income” products for retirees, while examining “the whole home and attachment to the home”.

“Maybe we have to look at the incentives around that [attachment to the family home] to help people move to downsize as well,” she said, citing stamp duty – levied by state governments – as an “inhibitor” to downsizing.

As Australia’s population ages and more people retire with large super balances, a key focus for the industry is to improve provision of retirement incomes, while still allowing people to accumulate wealth.

The federal government’s Retirement Income Review in 2020 said that “in general, retirees do not consume their retirement savings”. One large super fund said members who died left 90 per cent of the balance they had at retirement.

Governments and super funds have also emphasised the role of financial planning in helping people manage their money in retirement. The number of planners working in Australia has declined sharply in recent years amid tighter regulation, some following the banking royal commission.

The federal government last year vowed to cut red tape and expand the provision of financial advice, saying it would create “a new class of financial advisers” to deal with simple matters without fees or commissions. It expected these “qualified advisers” would generally be employed by financial institutions.

The first reforms went through the House of Representatives last week, and the government aims to get the second tranche of legislation before parliament later this year.

George said allowing super funds to give basic advice would help to educate people about their options in retirement, including retirement income products.

AMP’s survey found about 80 per cent of people aged over 65 thought their children faced “similar or harder financial challenges than they did growing up,” but most did not want to compromise their retirement lifestyle to help. George said concern about spending extended to costs such as aged care.

“They’re just worried about that money running out, and as a consequence, they’re not enjoying their retirement as much as they could, and they’re probably not helping their children when they could, earlier in life,” she said.

The survey found the most popular way in which retirees were willing to support their children was providing accommodation, followed by paying their children’s bills for them.