Living with risk: Retired couples’ experiences of a financialised retirement income system

Introduction

The provision of retirement incomes for Australians has undergone significant change over the past three decades. In 1992 the Superannuation Guarantee Charge Act required employers to contribute a portion of each of their employees’ earnings into a superannuation fund for them. ¹ This system now forms the main earnings-based pillar of the Australian ‘three-pillar’ retirement income system, standing alongside the government Age Pension, which remains as a safety net, and private savings. Australia now has one of the largest superannuation industries in the world with total assets valued at AUD 3.3 trillion, equal to over 150% of gross domestic product, in June 2022 (Australian Prudential Regulation Authority [APRA], 2022).

Although the Superannuation Guarantee is government mandated, the management of superannuation funds occurs within private sector organisations. Thus, the shift towards superannuation over the past few decades has seen the Australian retirement income system become increasingly integrated into the deregulated world of private financial markets – a process that can be described as financialisation. There now exists a plethora of financial interests that are heavily invested in the further growth of the superannuation system, including banking and financial institutions that control or rely on the enormous assets tied up in superannuation, an extensive financial adviser industry, and associated lobby organisations. The superannuation system has also created a significant group of retirees whose financial futures depend on the performance of superannuation funds and the continuation of generous taxation and other government supports for superannuation.

Much of the commentary on the shift to superannuation in Australia has been enthusiastic about its benefits. For example, international reports have identified Australia’s system as one of the most successful retirement income systems in the world (see Mercer, 2020), and Australian trade union leaders have characterised Australia’s ‘universal’ superannuation system as one of its greatest success stories:

After more than 25 years we are seeing its truly transformative effect not just on the lives of working Australians but on the broader national economy. We now have an entire generation retiring with the benefit of decades of compulsory superannuation, delivering them dignity in retirement, helping to ease the burden on the age pension, and mitigating wealth inequality. (Combet, 2020)

Against this, a range of heterodox economists and political economists have criticised the financialisation of the Australian retirement income system. Many argue that the shift to such a system will have adverse consequences for many individuals by exposing them to increased levels of risk as they are drawn into engagement with financial markets – becoming ‘active (if often reluctant) investors and risk takers’ (Bryan and Rafferty, 2017: 108; see also Borowski, 2013; and for international perspectives see Clark, 2000; De Deken, 2017; Ebbinghaus, 2015; Natali, 2017; Orenstein, 2003). In effect, financialisation is predicted to result in a ‘re-commodification’ of retirees’ lives, exposing older citizens to risks associated with greater dependence on market forces and financial upheavals in their later years.

This paper takes up the question of the effects of a financialised retirement income system on retirees, contributing novel evidence on Australian lived experiences of risk in retirement. Partly reflecting the recency of the shift to superannuation (those covered by the Superannuation Guarantee for all their working life are only now starting to retire), there is currently little evidence on the actual experiences of risk of Australian retirees under a market-based system. This paper aims to help fill that important gap in the extant literature. It does so by contributing an analysis of data generated in interviews with a cross-section of retired, mixed-sex couples. The case studies that we report make a further contribution by showing how the financialisation of the retirement income system has impacted older Australians’ experiences of risk in retirement in ways that are not captured by the aggregate data and broad generalisations used in other studies of the Australian system.

The paper begins, in the following section, with a brief review of key studies of financialisation and the Australian retirement income system. The approach and methods of our investigation of the experiences of older, mixed-sex couple households follows in the next section. Subsequently we present detailed data from a range of these couples, and then draw our conclusions.

Studies of financialisation and the Australian retirement income system

The term financialisation is a complex one but it encompasses a number of powerful transformations occurring in almost all capitalist economies (Van der Zwan, 2014). Analysts of financialisation have identified the increasing dominance and power of the financial sector at national and international levels combined with the increasing influence of neoliberal economic theory and policies as central drivers underpinning the widespread adoption of privatisation, financial deregulation and austerity fiscal approaches. The increasing financialisation of the economy has also been associated with a ‘cultural’ shift towards individualism and the emergence of a new ‘subjectivity’ amongst citizens, namely an ‘investor’ ideal-type of individual or household. Individuals have been encouraged (or required) to increasingly participate in financial markets whether through the rapid spread and availability of banking and financial credit products, the increasing availability of finance for property investment, or through effectively becoming shareholders through their superannuation investments. Individuals thereby have been encouraged to internalise new norms of risk-taking. This has been described as the increasing financialisation of everyday life for individual citizens ² (Hillig, 2019; Pellandini-Simányi, 2021; Van der Zwan, 2014).

Evidence of the above transformations can be seen in changed institutional structures and policies across almost every aspect of the Australian political economy and society. However, they are particularly evident in the changes that have emerged in the institutional arrangements in the Australian retirement income system since the introduction of the Superannuation Guarantee.

A number of critics of the shift towards private retirement income provision have pointed to the transference of risk to workers that this potentially brings. Borowski, for example, argued that the structure of Australia’s retirement income system, mirroring the ‘financialised ideal’ recommended by the World Bank, would expose retirees to a range of risks, including ‘inflation risk, malfeasance and incompetence in the management of superannuation funds, exchange rate risk, investment risk, longevity risk and political risk’ (Borowski, 2013: 750–751; see also Gallery et al., 1996: 99).

Feminist economists also have delivered critiques of superannuation highlighting the especially large risks for women posed by the growth in earnings-based superannuation, given women’s disadvantaged labour market position and high exposure to periods out of paid work due to unpaid work commitments (see, e.g. Olsberg, 2003; Sharp, 1992; Women in Super, 2022).

Bryan and Rafferty (2017: 104) place particular importance on the role of defined-contribution accounts in their analysis of the risks associated with the shift towards superannuation, arguing that ‘the shift from defined-benefit pensions to defined-contribution superannuation is one of the starkest expressions of the shift of risk from states to citizens, and the associated role of finance’ (for an international perspective see Brooks and Weaver, 2005; De Deken, 2017).

However, Mees (2020) argues in opposition that the previous defined-benefit schemes (common in public-sector and large corporate workplaces prior to the Superannuation Guarantee legislation) were less than efficient and very limited in their coverage. He concludes that the structure of the reforms introduced by the Superannuation Guarantee legislation together with other reforms in the financial system have on the whole, reduced the level of risk for employees.

Many other commentators on the Australian retirement income system side-step the issue of risk and rely instead on aggregate indicators to gauge the performance of the superannuation sector. For example, the influential Grattan Institute report Money in retirement: More than enough, whilst acknowledging that retirees are exposed to risks in the drawdown phase of their superannuation (when they are retired and needing to access their superannuation), did not pursue the issue of risk, claiming that it was ‘beyond the scope of this report’ (Daley and Coates, 2018: 15). The report did go on to claim, however, that as the superannuation system reaches maturity the vast majority of retirees will be financially comfortable. ³

The findings of the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Australian Government, 2019: 1:1–2) show that a less sanguine view of the performance of the superannuation system is warranted. The Commission revealed that members of for-profit retail superannuation funds were exposed to a host of risks through malpractices and exploitative behaviours as well as poor returns. Self-managed superannuation funds were also found to be associated with relatively high levels of risk. Whilst these funds can be perceived as creating an opportunity to control one’s own investment strategy, they also offer little to no protection against, malpractice, poor decision-making and unforeseen events.

Approach, data and methods

With the aim of providing detailed evidence on the lived experience of risk in a financialised retirement income system, we collected data in interviews with a cross-section of retired, mixed-sex Australian couples. Retirees living in couple households comprise the majority (64%) of all retirees in Australia (Australian Bureau of Statistics [ABS], 2018–19). We focus on mixed-sex couples to bring to light intra-household gender relations within older households, an under-researched topic area. ⁴

Our interviews were conducted in 2018–19 with 36 retirees across two capital cities and in one regional centre. Our interviewees were a purposive sample of retirees recruited using a number of strategies to ensure that a variety of retirement experiences were captured. We were aware that we ran the risk of recruiting a group of willing narrators who felt comfortable in placing their relationship and financial arrangements under our ‘microscope’; in other words, there was a risk of recruiting a sample of relatively well-off retirees and couples with low levels of conflict within their relationship. We sought to minimise the potential impact of this factor by using professional and social networks to identify interviewees who might not otherwise have participated.

To achieve a cross-section of economic experiences, we first used criteria developed by the ARC Centre of Excellence in Population Ageing Research (CEPAR, 2018) and the Association of Superannuation Funds of Australia (ASFA, 2019) to identify three income categories: well-off, comfortable and modest. ‘Well-off’ households have a combined annual income over AUD 80,000. ‘Comfortable’ households have incomes between AUD 60,000 and AUD 80,000. The remainder live in ‘modest’ households, with annual incomes below AUD 60,000 – although those with household incomes below AUD 40,000 could perhaps be better classified as living in a ‘precarious’ situation.

Just over one-fifth (22%) of the households in our sample were ‘well-off’, 44% were ‘comfortable’ and one-third were classified as either ‘modest’ or ‘precarious’. As such, despite our efforts, our data does still under-represent the experiences of modest or precarious households. CEPAR estimated that over two-thirds of all retiree couple households that were homeowners had an annual household income below AUD 60,000 (CEPAR, 2018) and one-fifth had an annual income below AUD 40,000. Retirees who were non-homeowners (both partnered and single) fared far worse with 84% living at a ‘precarious’ level (CEPAR, 2018: 8).

The conduct of the interviews was informed by feminist political economy research methods. This entailed, in part, avoiding an assumption commonly made in mainstream economics that the household would be functioning as a single unit. Reflecting this, each partner of the couple household was interviewed separately to ensure that both the male and female partner had an equal voice in describing the couple’s experience of retirement. The approach also enabled an assessment of each partner’s knowledge of income and assets within the household. We also utilised a typology developed by Broomhill and Sharp (2007: 86–88) to classify each couples’ pre-retirement gender arrangements as being: traditional male breadwinner (male worker/female home-carer); modern male breadwinner (male full-time worker/female part-time worker and home-carer); or dual income household (both full-time workers/shared home-care).

Interviews were digitally recorded (with permission) and transcribed for analysis. In analysing the interview transcripts, we utilised the technique of ‘reading between the lines’ developed by Mills et al. (2014). This technique recognises that interviews are woven with stories, silences and emotions that provide a nuanced insight into the spoken and unspoken norms and practices operating within the household. A comprehensive summary of each interview was then prepared by the team member who conducted the interview. These were read and discussed several times by all members of the research team and through this process core ideas and concepts were identified for individuals and households. We utilised this technique to explore the complexities and contradictions in the ways that individuals negotiate the risks and challenges of retirement by themselves and with their partners. We found that the analysis benefitted from the involvement of all four members of our diverse research group which included male and female researchers with economics, political economy, history and sociological expertise.

The lived experience of risk in older, mixed-sex Australian couple households

We start our presentation of results on the financial risks and other challenges that older couples face in retirement with data from the group of retirees who were living in ‘well-off’ households. Pseudonyms have been used in the following accounts of the experiences of our interviewees to protect their privacy.

Conclusion

Our study made use of the rich data generated by qualitative research methods to ‘bring to life’ the effects of a financialised retirement income system on the experiences of older Australians. The results of the study add important new details on the performance of the Australian retirement income system, complementing analyses that, to date, have been largely predictive of the effects of the shift towards superannuation and/or based on aggregated quantitative data.

The results of this investigation include that the nature and level of risk experienced by retirees is far from uniform. The data revealed that each of the three groups of households – well-off, comfortable and modest or precarious – experienced risk in their interaction with the ‘three pillars’ retirement income system, but this occurred in quite different ways and with different degrees of positive and negative outcomes.

Our interviews with ‘well-off’ retirees indicated that they had incomes and assets in retirement that protected them to a high degree from economic insecurity and helped to minimise their vulnerability to share market and other fluctuations. These retirees had clearly done very well as a result of accumulating healthy superannuation savings, often with the assistance of good financial advice and with the benefit of generous taxation arrangements for superannuation. They also generally displayed an enthusiasm to embrace what can be described as the ‘investor culture’ that is actively promoted within the superannuation industry and by government. In many cases we found that these retirees benefitted from drawing on advice from financial advisers for assistance with investment decisions and planning strategies. However, we found that a certain level of insecurity existed even within this group resulting from their exposure to the vicissitudes associated with market fluctuations and other unpredictable aspects of their financialised investments – including particularly uncertainty about the length of time that their retirement savings would need to be stretched and about what resources would be required in the future to meet their health and aged care needs. Some women, whose partners had taken responsibility for household finances, expressed considerable anxiety about how they would manage their financial affairs and resources after the death of their partner.

The households most obviously affected by the risks resulting from the financialisation of the retirement income system were those experiencing a ‘comfortable’ living standard. Those households most often relied on a mix of defined-contribution superannuation and Age Pension payments for their retirement income. Some also had attempted to self-manage at least a part of their savings – or had done so at some stage. Even while generally relatively secure financially at the time of interview, many were anxious about their futures and struggled to cope with some of the fundamental uncertainties and risks they might face in the future: Are my superannuation savings going to be adequate? What annual income will I need to continue to live comfortably? We found a very common theme was uncertainty about whether their retirement savings will last as long as required. Many had initially made judgements about their choice of retirement investments based upon an overestimation of the capacity of their savings and an underestimation of their long-term needs. The risks that they now perceived created a desire to ‘self-insure’ against external events, but many struggled to achieve this given the inflexibility of their income sources. Amongst these ‘comfortable’ retirees we noted a greater degree of concern about the high and increasing cost of health and institutional care should that be needed by one or both partners.

The interview data illustrated that the degree of risk and anxiety experienced by those on ‘comfortable’ retirement incomes was also linked to how their superannuation investment was managed. Almost half of all superannuation accounts are held in not-for-profit industry funds while approximately 30% are in commercial retail funds (ASFA, 2022). Those who derived their retirement income primarily from investments in not-for-profit industry superannuation funds generally expressed much higher levels of security and less concern about their level of risk than those whose investments were held in private retail funds or who dabbled in shares or property investments. We found that there existed a number who had embraced the ‘investor culture’ that was common amongst well-off retirees – but often these retirees lacked the resources to be as successful. Those who were more directly engaged in attempting to manage their own investments whether through a self-managed fund or through individual property or share market investments displayed higher levels of anxiety – often as a consequence of market instability.

For those whose living standards we described as ‘modest’ or ‘precarious’ the risks posed by the financialised retirement income system were less related to the inherent risks associated with managing one’s superannuation assets over an uncertain timespan but, rather, their lack of such assets. However, the lived experiences of retirees in ‘modest’ households are most important as they demonstrate the risks posed by events such as unemployment, poor health and care responsibilities in a financialised retirement income system.

For a variety of reasons, including low wage employment and disrupted or truncated work histories, many of the interviewees living in modest households had few, if any, superannuation assets and their living standards were modest because of the low level of the Age Pension. The circumstances of those who didn’t own their own home were precarious.

The Age Pension plays a critical role in Australia’s retirement income system as it reduces the risks associated with labour market absence, low wage jobs, market upheavals and longevity. However, the decision of successive governments to progressively increase the age at which both men and women are able to access the Age Pension has undermined the financial position of those who need (for health or other reasons) to leave work early, or who have been forced out of their jobs. For many of the ‘modest’ participants in our study, prevailing policy rhetoric and media images also caused them to fear that the Pension would erode in value leaving them with an even more inadequate and insecure standard of living in the future. One concern was that if the Age Pension is defunded and if health and aged care continue to be privatised and become more expensive, the capacity of those dependent on the Pension to afford these essential services will disappear. For many of the ‘comfortable’ and ‘well off’ participants in our study, the thought of becoming dependent on the Age Pension also generated a feeling of anxiety and in many cases a degree of shame about the loss of self-reliance.

The notion of ‘political risk’ is relevant here; the risk of policy changes that can subvert retirees’ efforts to successfully achieve the living standard that they anticipated (Borowski, 2013: 752–754). As noted, concerns were frequently expressed in the interviews about the possibility of policy changes that would further undermine the adequacy of the Age Pension. But retirees are also vulnerable to changes in the taxation arrangements on superannuation, as their reaction to a proposal by Labour in the 2019 Federal election to restrict access to franking credits showed (Bagshaw, 2019). In this instance, the strength of the electoral backlash against these proposals saw the credits (which flow largely to more wealthy retirees) retained at an estimated annual cost of AUD 6 billion (Bagshaw, 2019). As a consequence, however, the risk of further negative changes to the Age Pension (of greater importance to less wealthy retirees) has likely increased.

Across the different groups of households, the interview data also revealed many women, due to their relatively low levels of superannuation, struggle to have their needs and concerns around the use of household savings reflected in decision-making. That is, across all income groups we found women who were experiencing additional insecurity and risk as a result of an imbalance of power in their household and unequal access to information about the household’s financial situation. This was more common in households which we categorised as traditional male breadwinner households and in modern male breadwinner households where the woman had worked part-time. This is a form of economic insecurity and inequality associated with the financialised retirement income system that is poorly recognised in policy discussions.

There were some modest households in our sample where the gender power balance had improved post-retirement. In these households, women had become more actively engaged in financial decision-making but largely as a result of the need for more careful management of a more restricted household budget. Some women in these households also now had access to a source of income of their own, as a result of their Age Pension entitlement. However, as the Age Pension is means-tested on household income and assets, in those households where the male partner has substantial superannuation assets, women’s access to an independent source of income in retirement continues to be limited.

Overall, the interviews undertaken for this study illustrate that many of the problems that many retirees encounter in their experience with the retirement income system are linked to its financialised nature. Some of these problems stem from largely unregulated financial institutions engaging in a range of dubious practices that have put retirees at risk. The close integration of superannuation funds with financial markets results in retirees’ savings being exposed to unpredictable financial market fluctuations such as occurred during the GFC. The dominance of a defined-contribution model for superannuation savings, underpinned by a neoliberal policy framework, reduces certainty for retirement incomes and, while this creates opportunities for some, for others it adds serious elements of unknown risk and insecurity.

The current Australian retirement income system is highly regarded internationally for its financial sustainability and positive macroeconomic impacts. For many of our interviewees, the shift towards superannuation has also improved their retirement income beyond what they would have achieved under the existing state-provided Age Pension. However, these interviewees illustrate that the current system also has shortcomings that derive from its financialised structure that shifts many of the risks associated with the provisioning for retirement onto individuals. The experiences of older Australians that has been documented in this research shows that these risks are substantial and affect the quality of life experienced by many retirees – pointing to a need for significant structural and policy reforms to the Australian retirement income framework.