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Millions of Australians lose by leaving savings in default MySuper funds
More than 5.2 million young Australians are missing out on higher superannuation returns by investing their retirement savings in default MySuper accounts, according to research from Innova Asset Management.
The analysis reveals that an all-equities portfolio spread across Australian shares and unhedged international shares outperformed the typical MySuper ‘balanced’ fund by 13.6 percentage points over the decade ended September 1, 2023.
Innova’s analysis of APRA data reveals Australians under 40 years hold more than 10 million MySuper accounts, so typically face a 25- to 45-year investment time frame before their super is accessible.
It has compared their performance to an all-equities portfolio consisting of Australian and international shares.
Dan Miles, Innova managing director and co-chief investment officer, said MySuper funds which default to a “balanced” type of portfolio typically were found to underperform an all-equities portfolio because insufficient risk was being taken given the time horizon of investors, many of whom can afford to take on more risk given their relatively young age.
“MySuper products were designed to cater for a largely disengaged customer base given superannuation’s distant payoff,” he said.
“Those least likely to be engaged – and so invest in default MySuper products – are young people with lower education, those on lower incomes and people with lower financial literacy.”
Mr Miles said retirement savings being allocated to a superannuation offering that is not in line with an investor’s long-term goals is growing and suggests there is a great opportunity for financial advisers to expand into a younger client base to advise them on taking on higher equity risk investment options.
“This is another window into the ongoing issue of financial advice accessibility. Younger Australians who are by default investing in MySuper products would be better off with financial advice,” he said.
“This represents an opportunity for financial advisers to offer more affordable and scaled financial advice to young Australians.”
Innova’s analysis of the APRA data reveals that almost 250,000 Australians (or 233,000 people) aged 30 to 34 years hold between $100,000 and $499,999 in MySuper accounts. Meanwhile, more than half a million (597,000) Australians aged 35 to 39 years also have the same amount invested in MySuper accounts.
“Younger investors will need to generate more wealth through superannuation to allow them a comfortable retirement income,” he said.
“While younger investors have the benefit of longer working lives and a rising superannuation guarantee, they will need stronger long-term returns.”
He added that many people currently rely on property to build wealth, but for many, especially younger investors, allocating to a property is out of reach as the cost to buy a property is too high.
“They would be financially better off investing more of their savings to assets such as equities – and importantly for superannuation, appropriate investment options,” he said.
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The peak body has called on the corporate watchdog to add superannuation to its recently announced simplification process that aims to cull red tape in financial services.
APRA has highlighted cyber security, AI oversight, geopolitical risks, and system stress testing as key concerns for superannuation and banks.
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