Investments, Strategy, Superannuation

Default options, inertia key drivers for members

Superannuation fund members have mainly opted for default positions in their level of contributions and asset allocations, with few moving into an SMSF, according to a new report released by Vanguard.

The report, “How Australia Saves”, is based on research drawn from three not-for-profit superannuation funds: First State Super, Sunsuper and VicSuper.

The investment manager said the research examined trends in contribution behaviour, asset choices and members’ outcomes at an individual member level for more than 2.3 million members in the three funds over the three financial years to 30 June 2018.

In doing so, the research found only 12 per cent of working members made contributions above the superannuation guarantee, either through salary sacrifice, non-concessional contributions or both, and the level of these contributions was also consistent during the three-year period.

Where super fund members made a higher proportion of voluntary contributions, they were usually self-directed, with 25 per cent of members in this group contributing over and above the superannuation guarantee, according to Vanguard.

Additionally, women made more non-concessional contributions than males across all investor types recorded in the research, while members with a median age of 49 in 2018 had a contribution rate between 10 per cent and 15 per cent of salary and those who had a median age of 59 had contribution rates above 15 per cent.

Vanguard also noted few fund members held extreme asset allocations, with 87 per cent of accounts invested solely in the default MySuper investment option. At the same time, only 1 per cent of members were recorded as having no allocation to growth investments and a further 1 per cent were recorded as investing exclusively in growth investments.

Commenting on the low levels of members taking extreme positions, the report said: “One of the benefits of life-cycle and target risk options is that they eliminate extreme allocations.”

The allocation to growth assets across the full member population covered by the research remained consistent at 69 per cent for the three years examined, however, self-directed investors chose a more conservative asset allocation, with 59 per cent allocated to growth assets.

Vanguard also highlighted fund rollouts and withdrawals were low among members of the three funds and only 4 per cent rolled funds into another Australian Prudential Regulation Authority-regulated super fund during the three-year period.

A further 1 per cent took a partial rollout and less than 0.5 per cent rolled out funds into an SMSF, with the report noting “these members tended to be in their late-40s or older and they had larger account balances”.

Vanguard Centre for Investor Research head Steve Utkus said this second edition of the report joined similar Vanguard publications in the United Kingdom and United States and also drew out common themes between the three countries.

“One of the key research insights is that while retirement systems differ across countries, certain behavioural characteristics are globally pervasive, such as inertia in decision-making.  This puts the onus firmly on policymakers and industry to ensure both defaults and policy settings are well aligned to the best interests of members,” Utkus said.

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