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

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Latest Updates

Superannuation

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Superannuation

Less than 1% of wealthy families will struggle to pay super tax: study

An ANU study has found that families with at least one super balance over $3 million have average wealth exceeding $19 million - suggesting most are well placed to absorb taxes on unrealised capital gains.   

Superannuation

Are SMSFs getting too much of a free ride?

SMSFs have managed to match, or even outperform, larger super funds despite adopting more conservative investment strategies. This looks at how they've done it - and the potential policy implications.  

Property

A developer's take on Australia's housing issues

Stockland’s development chief discusses supply constraints, government initiatives and the impact of Japanese-owned homebuilders on the industry. He also talks of green shoots in a troubled property market.

Economy

Lessons from 100 years of growing US debt

As the US debt ceiling looms, the usual warnings about a potential crash in bond and equity markets have started to appear. Investors can take confidence from history but should keep an eye on two main indicators.

Investment strategies

Investors might be paying too much for familiarity

US mega-cap tech stocks have dominated recent returns - but is familiarity distorting judgement? Like the Monty Hall problem, investing success often comes from switching when it feels hardest to do so.

Latest from Morningstar

A winning investment strategy sitting right under your nose

How does a strategy built around systematically buying-and-holding a basket of the market's biggest losers perform? It turns out pretty well, so why don't more investors do it?

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.