Half of small business owners will rely on pension

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Half of Australia’s small business owners will fall short on retirement savings, and one in four anticipate they will need to rely on the Government pension in later years.

New research commissioned by St. George bank looked at the retirement outlook of more than 1,000 small business owners. It found that over half (55 per cent) do not believe they will able to save sufficient superannuation for their retirement. An additional one in five (19 per cent) were unsure of their retirement prospects.

Worryingly, almost half (45 per cent) of owners admitted they do not have adequate insurances in place to protect themselves if an unexpected event changes their ability to run their business and earn money for retirement.

Key findings:

  • A quarter (26 per cent) of small business owners say the government pension will be their main source of income when they retire, closely followed by 23 per cent who will rely on superannuation payments.
  • One in five (20 per cent) business owners say they will fund their retirement by selling their business. Income from assets such as dividends or an investment property will be the main source of retirement funding for 19 per cent of business owners.
  • More than half (54 per cent) have made no plans for business succession, with the remainder planning to sell their business (20 per cent), pass on to a family member (15 per cent) or have a staff member take over its operation (8 per cent).

Phillip Godkin, General Manager Business Banking at St. George, said while running a successful business is often a focal point for owners, the importance of building personal wealth and planning for retirement should not be overlooked.

“With 55 per cent of people saying they don’t believe they will have enough money in superannuation to retire, it’s important business owners at any stage of their life work out a strategy that will help increase their personal wealth, such as an investment property or shares, which 20 per cent of people surveyed said they will rely on as their main source of income in retirement,” he said.

The St. George research coincides with an announcement by Australia’s national scientific agency, the CSIRO, which will be putting the spending habits of retirees under the microscope over the next 12 months. The report is part of an effort to understand the finer details behind how people use and manage their super in retirement.

“We’re looking to understand what retirees need, how long their super lasts and what investment options and financial products might best suit them throughout their retirement so we can figure out how their super could work smarter,” CSIRO Research Leader Alan Dormer said.

Michael O’Neill, CEO of over-50s lobby, National Seniors, said he expected the CSIRO research to disprove the common view that baby boomers spend their super living the high life, and then fall onto the pension once their savings have been spend.

The Melbourne-based team of researchers will use big data analytics, social science, risk and economic modelling in their report. They will aim to answer questions such as how superannuation will affect the economy as it grows ever bigger, and how we provide security in retirement for all Australians.

A CSIRO spokesperson commented that the agency has positively engaged with industry, and a number of funds are supporting the research.

The research will be conducted over the next year and will include:

  • Retirees lifecycle expenditure patterns;
  • Managing liquidity risk for superannuation investment;
  • New and innovative superannuation products; and
  • Behaviour economics in superannuation.
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