A study by the Centre for International Finance and Regulation (CIFR) provides new insights into Australian default superannuation funds and their members.
The study surveyed over 1,000 default super members and 28 executives from 20 funds to identify what default super fund members are looking for, whether executives have an accurate perception of member wants and needs, and how fund providers go about meeting those needs.
One strong finding was that far fewer members than popularly believed are passively ‘ending up’ in default funds through lack of interest or engagement. Around two-thirds of the members surveyed made some kind of choice: either choosing their fund provider, or their investment option. The majority cited lack of knowledge as the main reason for defaulting, and indicated that they trusted the fund provider to make the correct investment decisions on their behalf. This highlights the importance of system integrity, and the need to engage appropriately with members in order to better understand what they want.
Co-author of the study, Susan Thorp from the University of Sydney, said: “Our study provides some unique insights into the wants and needs of super fund members, and how they square with what the industry is attempting to deliver. Whereas in many cases they seem aligned, one potential issue is that the majority of surveyed members display low risk tolerance, while default investment options are often relatively aggressive.”
The research found that fund executives were well aware that members are primarily interested in their retirement outcomes; have limited interest in comparing funds on the basis of relative returns; and view short-term performance to be of little consequence as long as return shocks are avoided, particularly close to retirement. While both members and funds acknowledge the relevance of fees, neither ranks them of highest importance against other aspects.
The study completes a broader research project into ‘MySuper’ default funds. Geoff Warren, Research Director at CIFR and project leader, noted that the research highlights four key areas for policy makers and the industry:
- Design of policy and product should be based on the assumption that many default members are actually paying attention, and depending on their fund and the system to compensate for their own lack of skill. Trust matters.
- Member needs may be better met through integrating MySuper and retirement products, and the fostering of smart defaults.
- Using a competitive tender to pursue lower fees may be a backward step, as it would encourage commoditisation when greater tailoring is needed. The focus should be value for money, not fees in isolation.
- Policy makers might pay closer attention to those with responsibility for choosing the default provider, specifically whether they are appropriately skilled and aligned with members.
The study is titled Delegation, trust and defaulting in retirement savings: Perspectives from plan executives and members. It is being released in conjunction with a summary of the overall project findings and implications. The project team comprises Adam Butt from ANU; Scott Donald from Centre for Law, Markets and Regulation at UNSW Australia; Doug Foster and Susan Thorp from the University of Sydney; and Geoff Warren from CIFR.
Source: Centre for International Finance and Regulation (CIFR)
