Proposals that make it harder for Australians to move beyond default superannuation products could leave millions with substantially smaller retirement balances, according to new research the Financial Services Council (FSC) has used to defend consumer choice and access to financial advice.
The report, commissioned by the FSC and prepared by NMG Consulting, argues that while MySuper products play an important role for disengaged members, remaining in default settings throughout a working life can come at a significant financial cost.
It comes as policymakers consider reforms aimed at strengthening consumer protections following the alleged misconduct behind the Shield and First Guardian collapses.
The modelling found Australians who switched from their default fund to a lower-fee investment option at age 30 could retire with up to $1.2 million more, while those who moved into a high-growth simple choice product at the same age could improve their retirement savings by around $690,000.
The research also estimated that more than seven million Australians under the age of 50 remain underweight to growth assets by around 14 per cent because they stay in MySuper products, potentially leaving them up to $540,000 worse off by retirement.
FSC chief executive, Blake Briggs, said encouraging members to engage with their super rather than remaining in default arrangements was critical to improving long-term retirement outcomes.
“People engaging with their super and making active choices at pivotal life stages – such as early career and retirement – can have a material impact on their financial future.
“While the FSC supports sensible and targeted reforms to address predatory behaviour alleged in the Shield and First Guardian collapses, policy proposals that make it harder for Australians to exercise control over their superannuation will directly harm their financial wellbeing.”
The report contends that MySuper products are designed to protect disengaged members rather than maximise individual outcomes, arguing they cannot account for differences in members’ financial circumstances, investment preferences or retirement objectives.
It also rejected the notion that defaulting members into retirement products is likely to produce better outcomes, saying retirement decisions require consideration of household wealth, tax, income sources, longevity risk and spending needs.
Another key finding challenges the perception that platform products and wrap accounts are inherently more expensive than MySuper options.
According to the analysis, compact and mini wrap products now offer fees that are broadly comparable with MySuper products across a range of account balances, particularly for members with larger balances.
The figures exclude discounts that may be available through dealer groups or family pricing arrangements.
Briggs said comparing platform products with MySuper solely on fees overlooked the broader services they provide.
“It is simplistic to say platform products have high fees compared to MySuper products. Many wrap products, particularly compact and mini wraps, now offer fees that are comparable to MySuper products, particularly at higher balances.”
NMG Consulting principal, Lachlan Reardon, said financial advice was increasingly centred on tailoring strategies to individual households rather than simply selecting investments.
“Choice is a spectrum, and it is important that consumers have access to products that can be tailored to their individual risk appetite and retirement goals. Consumers, particularly those receiving financial advice, are increasingly turning to platform-based products because they offer efficiencies and flexibility.”
The research argued financial advice can improve outcomes across a range of wealth levels by helping households manage debt, budgeting, retirement planning, aged care costs, estate planning and Centrelink, with investment selection representing only one element of the advice process.
Additionally, the FSC disputed the assumption that advised investors are routinely placed into riskier portfolios, stating investment strategies are designed around individual objectives and are increasingly professionally managed.
Briggs said preserving consumer choice and improving access to advice would become increasingly important as Australia’s population ages and retirement decisions become more complex.
“When Australians are informed and engaged with their superannuation, it gives them greater confidence and peace of mind, particularly during periods of economic uncertainty and global instability.
“In times of volatility, access to quality advice and strong engagement can help members stay focused on their long-term retirement goals and avoid reactive short-term decisions, supporting better retirement outcomes over time.”
That article is pure self-interest IMO. If we really want a Super system that is fair to everyone, we should have a balanced fund which runs a small reserve and has no investment choice!