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.

 

  •   4 September 2015
  • 1
  •      
  •   

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

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 income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

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.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Latest Updates

Shares

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Superannuation

When you can withdraw your super

You can’t freely withdraw your super before 65. You need to meet certain legal conditions tied to your age, whether you’ve retired, or if you're using a transition to retirement option. 

Retirement

A national guide to concession entitlements

Navigating retirement concessions is unnecessarily complex. This outlines a new project to help older Australians find what they’re entitled to - quickly, clearly, and with less stress. 

Property

The psychology of REIT investing

Market shocks and rallies test every investor’s resolve. This explores practical strategies to stay grounded - resisting panic in downturns and FOMO in booms - while focusing on long-term returns. 

Fixed interest

Bonds are copping a bad rap

Bonds have had a tough few years and many investors are turning to other assets to diversify their portfolios. However, bonds can still play a valuable role as a source of income and risk mitigation.

Strategy

Is it time to fire the consultants?

The NSW government is cutting the use of consultants. Universities have also been criticized for relying on consultants as cover for restructuring plans. But are consultants really the problem they're made out to be?

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.