Default funds are a key driver of super

While self-directed superannuation fund investors had marginally better returns than default members at the top percentile, a lot of them did significantly worse, giving default options a strong endorsement, according to a report.

The joint inaugural ‘How Australia Saves 2017’ report by Vanguard and Sunsuper found at the top percentile of a five year estimated total returns to 30 June 2016, self-directed investors returned 8.4 per cent, compared to lifecycle members and diversified balance members both at 8.3 per cent.

However, nearly all the dispersion of outcomes for members outside the default were on the downside.

Vanguard’s senior manager for superannuation policy, and co-author of the report, Paul Murphy said: “That was a little bit surprising because we thought there would be more people with better self-selected outcomes than that but they didn’t”.

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“So basically this is saying that there is a strong endorsement for default funds strategy and choice architecture, that’s a key message from this.”

The report noted that lifecycle and single diversified balance option members were generally benefitting from the structure of their option relating to their asset allocation and portfolio rebalancing needs.

“The research shows that default settings and member inertia rather than being something to apologise for are key settings and key drivers of positive retirement outcomes if you’ve got a sensibly structured environment,” Murphy said.

“At the end of the day if you’re in a well-diversified, professionally managed portfolio with rebalancing built into it and maybe a glide path built into a more conservative investment when you get older, then it looks as though that gives you the strongest chance of success in the long run.”

When asked about the proposed alternative default regime, Murphy said that the positive default result that came from the report gave evidence to support the existing default regime.