An enduring myth is that super fund members who do not nominate a super fund to receive their compulsory employer contributions are probably disinterested in their retirement savings.
In reality, research over the years suggests that many members have concluded that their employers’ default fund is appropriate for their circumstances. In other words, they have thought about their superannuation and made a decision.
This decision-making certainly does not equate to being disinterested in their retirement savings.
A comprehensive research paper published by the Centre for International Finance and Regulation (CIFR) provides a recent fascinating insight into the degree of interest that members of super default members have in their super savings. Its findings may surprise you.
The paper – written by five authors from Australian universities and the CIFR – is based on a survey completed by more than 1000 super fund members in August 2014 together with interviews of 28 executives from 20 Australian super funds.
Only 36 per cent of fund members responding to the survey were described as "double defaulters". These members did not choose a super fund nor did they choose investments that differed from their funds’ default investment portfolio.
By contrast, 22 per cent of respondents did not nominate a super fund yet went on to make an active investment choice for their super.
On one hand, many survey respondents who were members of default funds expressed a lack of confidence in their ability to first choose a super fund and then to choose investments for that fund. Nonetheless, a large percentage of these members were clearly extremely interested in their retirement savings.
Significantly, the researchers write that their survey shows that "defaulting is not a simple proxy for low interest or engagement" in super.
"[Many] defaulting members trust their provider [super fund] to act in members’ best interests," the report emphasises, "and they rate the default plan and/or the default investment option as personally suitable."
With the progressive introduction of the MySuper system for members who have not nominated a super fund or made an investment choice, it is worth revisiting the issue of default member interest or disinterest in their super.
From January 2014, all new contributions and rollovers must be directed to an authorised MySuper product for members who have not chosen a super fund. And by July 2017, super funds must transfer outstanding default balances into a MySuper fund unless the member opts out.
In summary, a MySuper product must provide such features as a single, diversified investment strategy (which can include a lifestyle strategy that becomes more conservative with a member’s age). MySuper funds must also offer a minimum level of death and total and permanent disability insurance with an opt-out option, and charge a standard set of easily-comparable fees with certain restrictions.
It is easy to jump to conclusions about the level of "engagement" and "disengagement" of super fund members. Super funds and financial planners who truly understand super fund members – whether or not in default funds – are obviously better placed to assist them.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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