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Super fund members are jeopardising their retirement savings by switching into higher risk investment options at the height of the market and into lower risk investment options as markets are falling, analysis of member switching behaviour by Watson Wyatt has revealed.  Watson Wyatt analysed around 1750 switches by members  in four of its corporate super fund clients and found they were demonstrating typical  retail investor behaviour by buying high and selling low. The findings were based on data from funds in 2007 and 2008.  In 2007, as markets were rising, “overwhelmingly people were switching into more risk”, according to David McNeice, principal of Watson Wyatt. 

The only exception was the month of August, when the highly publicised sub-prime crisis took hold and switches to less risky investment options spiked.  “It’s close to 90 per cent in the first half of the year switching  into more risk and maybe 75 per cent in the second half of the year, with the exception  of August,” McNeice said after a presentation to a Fund Executives Association Limited national briefing in Sydney last month.  “Apart from that blip, in the balance of 2007 about three quarters of the switches are going to more risk, so they are buying into a rising market. In 2008, overwhelmingly, about 80 per cent over the course of the year are switching away from risk.

The frequency of switching increased in the second half of the year quite rapidly.”  Watson Wyatt also examined  patterns among voluntary contributions in excess of SG during this period, and found contributions remained relatively stable in 2007 with the exception of June, reflecting a rush to top up super accounts ahead of the introduction of new legislation capping the amount of non-concessional contributions at $150,000 per year.  Likewise in 2008, Watson Wyatt found no discerning trend indicating members had reduced voluntary contributions  when the markets turned south. 

“This would suggest that once people are on a higher level of contribution they tend to stick to it,” McNeice said.  “That’s a helpful way of improving retirement savings. Pay rises are not particularly common in the current environment  but when we get back to a more normal environment, if there’s a facility where people, instead of taking extra take home pay, can convert it to a voluntary contribution, that’s more likely to stick and that will help their savings in the long run.” 

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