Superannuation funds have a suite of options to suit all types of investors. There is plenty of choice and something for everybody. Everybody except the majority of us who make no choice at all, that is. STEPHEN SHORE investigates the evolution of the default option.
With an average 82 per cent of industry and corporate fund members in a default option, many people are not actively engaged in managing their retirement savings. While this does not necessarily imply apathy, at the very least, the majority of members appear to be content for their fund to make investment decisions on their behalf.
For its part, the Australian superannuation industry has done much to earn this trust. Most funds’ balanced options have performed well, delivering high and stable returns. But investors have diverse needs and saving for retirement is not supposed to be a one-size-fits-all solution.
With the number of members sitting in default options, this has inevitably become the case. A few superannuation funds have realised that while a personally tailored retirement plan is not available to or desired by everyone, there are certain basic assumptions that can be made about the investment needs of members. Firstly, a person with 40 years until retirement can probably handle a substantial amount more risk and volatility than someone nearing retirement. And secondly, a person with 40 years until retirement is unlikely to be at all interested in planning for that retirement.
According to Paul Cahill, chief executive of Club Plus, the latter point is no assumption. The fund for club industry employees, the majority of Club Plus’ members are under 30 years of age. It has a default rate of over 90 per cent. Cahill says you can try to educate younger people about the benefits of taking an interest in managing their super, “but you will be running uphill”.
On January 1, Club Plus launched three ‘age-based default’ options. In the first, anyone under 30 joining the fund will now be placed in a high-growth default with an 80/20 growth/defensive split. People aged 31 to 45 enter the 70/30 growth option, and members over 46 will default into the 60/40 balanced option There is still plenty of time to decide what will happen to these cohorts as they approach retirement, but as it stands at the moment they will remain with their asset allocation until they decide to change it themselves.