More than half of people saving for retirement could change investment settings based on how companies act during the coronavirus era, according to a new State Street Global Advisors (SSGA) study.
The SSGA survey found that 55 per cent of almost 3,500 savers it polled across five jurisdictions would re-evaluate their investments in light of corporate reactions to the pandemic.
“Of those savers motivated by companies’ COVID-19 response, nearly one in three (29%) would be keen to invest in companies that treated their workforce well during the crisis, 27% would invest in those organizations innovating COVID-19 vaccines and treatments, 25% would invest in companies that contributed resources to the crisis and 25% would not invest in companies that had unfairly taken advantage of a disruption in the market,” the report says.
SSGA says the findings highlight how the ‘G’ in environmental, social and governance (ESG) could hold greater sway over investors given corporate decisions now filter more easily into public view “either directly or through social media”.
Jonathan Shead, State Street Australia head of investments, says in a release: Australians surveyed also showed an appreciation for lower volatility strategies and companies that were managed responsibly with regard to the crisis. These findings provide useful insight into the kinds of funds members would like to see their savings invested in.”
Survey respondents, however, were less inclined to make knee-jerk changes to retirement savings plans due to COVID-19 concerns.
The SSGA study found that while confidence in savings strategies had dropped slightly overall (but with variance between age and gender cohorts) in the wake of the coronavirus, about two-thirds of those surveyed “said they weren’t making changes to their retirement plans”.
“Very few were seeking financial advice (6%), switching to higher-risk (8%) or lower-risk (5%) investments or moving plan providers (2%),” the report says. “Staying steady in this environment is both prudent and an interesting reflection of human behavior.”
The SSGA data backs up experience in the KiwiSaver market where over $1 billion shifted into lower-risk funds at peak COVID panic in March – or less than 2 per cent of the $60 billion plus total funds under management at the time.
After spiking up in March, Inland Revenue Development (IRD) igures show both KiwiSaver contribution holidays and financial hardship grants have since leveled off.
Likewise, almost 80 per cent of respondents had left their retirement plans as is during the COVID-19 crisis, the SSGA study found.
“In fact, the percentage of those who had reduced or stalled retirement contributions averaged to only 13% across the surveyed markets, with 9% reporting they had increased contribution rates,” the report says.
But the survey – covering the UK, Ireland, the Netherlands, the US and Australia – found almost a third of those surveyed were in worse financial shape due to the virus-related economic fallout.
“While respondents’ short- and long-term investment strategies remained largely unaltered, 72% said they have made adjustments to their living expenses, with over half (54%) having reduced spending on nonessential items, some eliminating monthly savings (12%), others accruing more credit card debt (10%) and still others increasing charitable contributions (14%), suggesting a range of ‘hoard or hand out’ financial behaviors,” the study says.
About 40 per cent of Australian and Irish respondents said they were in worse financial condition post-COVID compared to just under 20 per cent for those in the Netherlands.
The survey found only a small drop in the proportion of those confident of retiring as planned compared to a similar SSGA study in 2018, with respective results of 19 per cent and 23 per cent.
“We might have expected a more dramatic delta between 2018 and 2020, given the pandemic, but the subtle shifts may be a result of this fairly inelastic sample, meaning that those who are prepared, and therefore reasonably optimistic and confident, aren’t really shaken by the current market,” the report says. “In addition, people’s confidence depends on their optimism and, in this case, their outlook is good, suggesting people see the coronavirus crisis as short-lived and surmountable.”
However, just under half (44 per cent) of savers reported doubts about hitting their preferred retirement deadline in both the 2018 and 2020 studies.
And the sandwich generation (X-ers born between 1965 and 1980) was most worried about missing retirement goals compared to those cohorts either side of this age bracket. Almost half of Gen-X respondents were doubtful of retiring on schedule versus just under 40 per cent of older and younger groups.
“This [Gen-X] population is likely to have more financial obligations than the older cohort and less time to fill savings gaps than their younger counterparts,” the report says. “Additionally, the mid-career segment is close enough to their retirement future to anticipate a range of challenges, but not so close as to feel assured in the solutions.”
Women across all age groups were least confident of retiring as planned suggesting they could benefit from “investment information and other gender-specific financial planning support”, the SSGA study says.
The survey targeted 3,479 individuals across the five jurisdictions who were employed at least part-time and had access to a workplace-sponsored (or equivalent) defined contribution savings scheme.