Risk labelling should include inflation: AustralianSuper

AustralianSuper is urging all super funds to include inflation on investment risk labelling after its research found many Australians do not understand the long-term risks of super savings.

The industry fund said super funds should include inflation as a long-term risk on risk labels, along with volatility.

It found half of young people aged 18-34 would choose an investment option labelled as ‘low risk' where many of those options may not earn much more than the rate of inflation.

Its research found that a young person investing in an investment option labelled ‘very low risk' for 40 years could be up to $170,000 worse off at retirement than if they chose a growth investment option labelled ‘medium to high risk'.

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Of the young people surveyed, 29 per cent did not know what a ‘low risk' investment option was or thought it would provide enough money in retirement.

Many people do not understand the impact of both types of risk, according to AustralianSuper general manager marketing and communications James Coyle.

Less than a quarter of people recognised there were two key risks when it came to superannuation savings — volatility and inflation.

"For a 55-year-old who is not going to keep their super invested in their retirement, a ‘low risk' — that is a low volatility option — may be part of a sound investment strategy, but for a 25-year-old who has another 40 years of saving ahead of them, choosing this option could be disastrous.

"Investment risk is relative to the individual and needs to be considered in terms of a person's ultimate savings objectives and timeframe," he said.

AustralianSuper found that less than half of Australians would even seek information on ‘high risk' investment options, while 25 per cent said they would change out of an investment option that was labelled ‘high risk'.