In recent years, more Australians have turned to the property market as their preferred investment choice. While rising property values and rental income are often cited as motivators, a less obvious and perhaps surprising factor is at play: declining trust in the superannuation system. This erosion of confidence – documented in our recent research and backed up by a range of surveys in recent years – is driving more people to invest in property as a way to secure their financial future, particularly for retirement.

Trust in social institutions, including retirement systems, has declined globally, shifting how individuals plan for their financial futures. In Australia, despite having one of the most developed retirement systems in the world (ranking fifth in the Mercer CFA Institute Global Pension Index 2023), many individuals remain sceptical about the adequacy of their retirement savings. The Australian superannuation system is designed to provide financial security in retirement, with mandatory contributions from employers and various incentives for voluntary contributions. Yet, even with a highly regulated and transparent system, trust issues persist and appear to be growing. This is leading individuals to seek alternative investment avenues, with property investment emerging as a popular choice.

In Australia, our research reveals a clear link between trust in the retirement system and property investment decisions. Specifically, individuals with lower levels of trust in the superannuation system are more likely to invest in the property market. This trend is consistent with findings from other studies exploring the relationship between trust and financial decision-making. For instance, in the United States, lower trust in pension funds has been linked to reduced participation in retirement savings plans. Similarly, in Sweden, trust has been shown to influence the level of risk individuals are willing to take in their pension investments.

Australia’s legal and institutional framework is robust, providing strong investor protection and reducing the risk of opportunistic behaviour by financial institutions. However, despite these safeguards, a significant portion of investors still choose to diversify their investments into property. Our analysis of data from the Property Investors’ Sentiment Surveys (PIPA) indicates that a lack of trust in the superannuation system is a significant driver of property investment. Respondents who expressed less confidence in the retirement system were more inclined to view property investment as a safer or more reliable way to secure their long-term financial goals. This finding aligns with theoretical predictions that suggest risk-averse individuals, who are less trusting, prefer to invest in tangible assets such as real estate over other, potentially riskier, financial products.

Our estimations show that Australian property investors develop alternative investment strategies by taking more responsibility for their future wellbeing. These findings are particularly insightful because the Australian superannuation system is one of the most transparent retirement systems globally. Additionally, the Australian legal system provides adequate protection to participants in financial transactions, meaning that our respondents should be less concerned about the misbehaviour of superannuation funds. However, the persistence of these trust issues highlights a deeper psychological factor at play.

This relationship between trust and higher investment in property markets is consistent with findings from our previous cross-country research. In that study, we observed a similar trend where individuals with lower trust levels in government and pension systems are more likely to favour real estate as a safer investment compared to other risky assets, driven by concerns about potential misbehaviour by other parties.

Our findings have important implications for policymakers and the financial services industry. While some studies claim trust is a superfluous consideration in environments with strong legal systems, our research demonstrates that trust remains a critical factor in retirement investment planning, even in highly regulated settings like Australia. This underscores the need to foster trust in the superannuation system as a strategy to reduce over-reliance on property investment. To build this trust, governments, and policymakers should prioritise educating individuals about the complexities of retirement systems.

Retirement systems can be complex and challenging to navigate, and not everyone fully grasps the range of sophisticated financial instruments available. Therefore, implementing policies that enhance financial literacy, simplify communication, and establish clear, transparent relationships with consumers – such as the potential options proposed in the Treasury’s discussion paper – can empower individuals to make more informed decisions that align with their long-term financial goals.

Moreover, our study suggests that enhancing the transparency, accessibility and security of retirement services can help build trusted institutions. By introducing regulations that ensure these services are user-friendly and genuinely serve the best interests of their clients, policymakers can help restore confidence in the system. In doing so, they may not only alleviate the pressure on the property market but also encourage a more balanced and diversified approach to retirement planning, ultimately benefiting both individuals and the broader economy.

Associate Professor Reza Tajaddini is the Head of the Department of Accounting, Economics, and Finance at Swinburne University of Technology. His research interests encompass geopolitical economics, behavioural finance and economics. He has extensively published in reputable journals, including the Journal of International Money and Finance, International Review of Finance and Global Finance Journal.

Dr Hassan Gholipour Fereidouni is an Associate Professor of Property in the School of Business at Western Sydney University (WSU) in Australia. Prior to joining WSU, he held Lecturer (2014-2017) and Senior Lecturer (2018-2020) positions in Economics at Swinburne University of Technology. Hassan is an active researcher in the fields of property economics, urban studies, tourism economics and Middle East economics.

Associate Professor Amir Arjomandi is the School Research Leader at the School of Business, University of Wollongong. He also serves as Co-Director of the Centre for Contemporary Australasian Business and Economics Studies (CCABES) at University of Wollongong. His research interests include applied economics, efficiency and productivity analysis and sustainable transport. Dr Arjomandi’s publications have appeared in leading journals such as Transportation Research Part E, Transportation Research Part A, European Journal of Operational Research and Journal of International Financial Markets, Institutions and Money.

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