The year is 1881 in Prussia. Conservative prime minister Otto Von Bismarck presents his radical notion to the Prussian Reichstag: older members of society should receive financial support from the government.
“…Those who are disabled from work by age and invalidity have a well-grounded claim to care from the state,” Germany’s Emperor, William the First writes to the Reichstag at Bismarck’s behest.
It’s a clever move to draw workers away from radical socialism.
Eight years later, Germans of at least 70 years of age begin begin receiving a government pension, provided they actually live that long. In 1889, you’re lucky to live beyond 70 years.
It’s a time when women can’t vote and the vote of wealthy people counts for 17.5 times the regular vote. The lightbulb has just been invented but Karl Benz is still busy thinking up his wondrous new innovation: the motor vehicle.
It’s still years from the radio, and decades from the advent of computers, mobile phones, artificial intelligence and life expectancies of 85+.
It’s a similarly long way from the current retirement system. But as millennials take over the workforce, Australia’s retirement system will have to change again.
Our expectations and wants
Even in recent years we’ve come a long way. The introduction of compulsory super in 1992 has opened the doors to retirement dreams of financial independence, yachts and sunsets.
But this dream has been tempered by the financial reality of a post-GFC world, Zuper founder Jess Ellerm summarises in a new report.
And while Baby Boomers grapple with this, younger investors have another question.
Will retirement even exist when I’m 65?
“Millennials will kill off retirement once and for all,” Ellerm hypothesises in the Pension Tech Welcome to The Unretirement Era report.
“No longer content with delaying travel and life experiences for their ‘golden years’, millennials and the generations beyond are increasingly drawn to more flexible career choices that allow them to achieve fulfillment throughout their lives, not just at the end of it.”
It’s borne out in the numbers. Australians’ number one savings goal is a holiday, followed by retirement, according to Canstar data.
The same data reveals 42 per cent of Australians rank going on a holiday as their top priority for 2019, followed by eating healthier, getting fitter and then taking control of their finances.
What young Aussies want from their super
The reality is most young people would rather spend their money on the here and now than a retirement that is growing even further away.
Young Australians also work multiple jobs with multiple employers. As the recent Productivity Commission noted, it’s easy for these workers to end up with multiple super funds that when compounded with a lack of engagement with retirement can end up costing thousands.
“It is time to acknowledge the old ways of creating wealth simply no longer work relative to how millennials and Generation Z are choosing to live, and pensions are part of this,” Ellerm argued.
“It is time we unpacked the traditional concept of retirement, and created a new pension architecture that creates financial freedom in the here and now.”
A series of new funds like Student Super, Zuper, Raiz Super and Grow are all attempting to build this new architecture. The common themes are low fees, greater communications with members and easy-to-understand explanations of members’ investment decisions and what they mean.
But the ability to communicate with your fund via a mobile app is the real boon for millennial investors, Ellerm argues.
Younger Australians expect this, and incumbent funds will need to reckon with this over the years.
The funds of the future
Funds have a vested interest in having an employable member base. The more their members are earning, the greater their superannuation contributions.
Zuper recently launched its Wealthness program, which is a partnership with education providers Academy Xi, General Assembly and Zamberi. Through Wealthness, members receive discounts on digital skills courses.
“The increased earning potential post course completion helps to maximise a member’s super balance sooner, and in turn grows the fund faster.”
Then there’s Wealthprint, which helps users track their financial behaviours and monitor problem areas.
“By combining theoretical knowledge from across the behavioural psychology spectrum, and pattern mapping across transactional and environmental data, Wealthprint explains to members how their brain works on money,” Ellerm explains.
“From there, Wealthprint is able to assist Zuper members develop a personalised action plan to modify certain behaviours that are potentially causing them financial harm, and nudge them towards positive behaviours and habits correlated with financial success.”
The funds of the future will also recognise that we are living increasingly nomadic lives. A byproduct of this is younger Australians’ tendency to rent, costing long term wealth.
Zuper is currently testing a Zuper Home product. Based around the idea of co-ownership, the product, currently undergoing modelling, will aim to help members enter flexible home ownership.
It will take cues from international projects giving young people the opportunity to part-buy, part-rent property. The initial price barrier is removed and the opportunity to grow wealth is pr
The remaining challenge is the fact that for a lot of young Australians, retirement is just so far away. How can these members be encouraged to care about their superannuation?
Attaching the sacrificed 9.5 per cent of workers’ salary to issues and projects close to members’ hearts is one way, argues Ellerm.
Just because workers won’t be able to access the money until they retire doesn’t mean they can’t put it to work right now.
According to a 2015 Nielsen study, 73 per cent of millennials around the world were willing to pay more for sustainable products, leaving the global average of 66 per cent who feel the same way well behind.
“Millennials have a far deeper understanding of the connection between money and change,” Ellerm said.
“This ethos is now being felt inside the investment community, as millennials seek out platforms that allow a similar type of ‘value driven’ expression.
“Pension Tech funds have an opportunity to reframe their offering as one of the most impactful purchasing decisions millennials will make during their lifetime.”
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