Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 125

Super engagement better than expected

In mandatory retirement savings systems like Australia’s Superannuation Guarantee, default options are critical. A ‘default’ is where the investment is chosen on behalf of the investor, such as by their employer. In other words, the investor accepts the default option. International research and experience show that ‘passive’ regulatory settings like defaults are far more important than those relying on active decisions like tax concessions. Super fund members face two key defaults: the fund itself and then the investment strategy.

The recent introduction of MySuper gave the superannuation sector a reason to review and renew default settings. And with the support of the Centre for International Finance and Regulation, the research paper, Delegation, trust and defaulting in retirement savings: Perspectives from plan executives and members, was commissioned to find out how well the refurbished MySuper defaults fit the people they are designed for. We interviewed superannuation fund executives and collected their impressions of member needs and characteristics, and the goals of MySuper defaults. Then we surveyed over 1000 members on their default behaviour, reasons for defaulting or opting out, and their superannuation goals.

More active choices than expected

More members described themselves as active choosers than we expected. The diagram below shows the proportion of members who stayed with the default fund and default investment option. Only 36% of our sample defaulted at both stages, meaning that 64% made at least one active choice.  Also, around one-quarter of members in the default fund and 9% of investment defaulters chose the default options deliberately. So the proportion of completely passive defaulters in our sample is probably below one-third. Clearly, not all defaulters are completely disengaged or uninformed, and conversely non-default choices are not a simple proxy for member interest and engagement.

Defaulters are more likely to be younger, female and have lower incomes than non-defaulters. As account balances rise and retirement approaches, the costs of a non-optimal default become larger and are likely to prompt more members to make another choice. Interestingly the financial literacy of defaulters was only a little lower than that of choosers and the difference was not statistically significant.

Interest, trust and defaulting

We also asked members about their reasons for defaulting versus choosing. Most people said they do not want to relinquish control over their retirement savings, but they found the products suitable, and viewed the fund as trustworthy and accountable.  Respondents in the default investment option emphasised more than others their own low skill and knowledge. Respondents in the default fund expressed more trust and belief that the system is well monitored. Time costs of active decision-making were rated high more often than money costs. These results are at odds with some industry commentary that characterises default members as uninterested in superannuation.

A lack of interest was not the main reason for delegating investment to the fund according to the survey (although it did have some impact), and neither is relinquishing control. However, interviews with fund executives suggested that trust is sometimes mistaken for disengagement. Trust, when combined with a self-conscious lack of financial skill, underlies both a low level of active choice and a low level of direct interaction with the fund.

Goals for superannuation

In terms of goals, members emphasised achieving a basic amount of wealth for retirement. This lines up with comments from interviews where executives framed default design in terms of retirement outcomes rather than short-term performance. However there is little agreement in the sector about what are the best strategies to reach this goal.

Members thought low fees were an important, but not the most important, aspect of a fund’s goals. This also seems broadly consistent with executives, who acknowledge that fees matter but view them as constraints rather than objectives.

A noticeable area of difference between executives and surveyed members relates to risk tolerance. The clear skew towards low risk tolerance among default members stands in contrast with relative aggressive investment strategies, where growth asset exposure averages over 70%. While life cycle funds are designed to de-risk near retirement, many executives express the view that default members need strategies with high growth asset exposure in order to generate higher balances and retirement incomes.

Regulators and industry might improve member outcomes by developing smart defaults that allow for a variety of risk preferences and demographics. The study emphasises the dangers of misconstruing super fund members as uninterested: instead, many see themselves as low in skill but high in trust.

 

Susan Thorp of the University of Sydney co-authored the research paper with Adam Butt of the Australian National University, Scott Donald of University of NSW, Doug Foster of the University of Sydney, and Geoff Warren of the Centre for International Finance and Regulation.

 

RELATED ARTICLES

Reply to Peter: Why a glide path makes sense, with equities for growth

Lifecycle funds increase super engagement

Are lifecycle funds appropriate for MySuper products?

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 628

Australian investors have been pouring money into US stocks this year, just as they start to underperform the rest of the world. Is this a sign of things to come? This looks at 50 years of data to see what happens next.

  • 11 September 2025
Exchange traded products

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement

We need a better scheme to help superannuation victims

The Compensation Scheme of Last Resort fails families hit by First Guardian and Shield losses, as well as advisers who are being wrongly blamed for the saga. It’s time for a fair, faster, universal super levy solution.

Investment strategies

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Economy

How bread vs rice moulded history

Does a country's staple crop decide elements of its destiny? The second order effects of being a wheat or rice growing country could explain big differences in culture, societal norms and economic development.

Investment strategies

Small caps are catching fire - for good reason

Small caps just crashed the party like John McClane did in the movie, Die Hard - August delivered explosive gains. With valuations at historic lows, long-term investors could be set for a sequel worth watching.

Defensive growth for an age of deglobalisation, debt and disorder

Today’s new world order appears likely to lead to a lower return, higher risk investment environment. But this asset class looks especially well placed to survive, thrive, and deliver attractive returns to investors.

Economy

Will we choose a four-day working week?

The allure of a four-day week reflects a yearning for more balance in our lives. Yet the reliability of studies touting a lift in productivity is questionable and society may not be ready for such a shift anyway.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.