Expect more switching for future market crises

Superannuation funds should be prepared to see members ramp up their switching behaviour during a future crisis and need to take measures to help members stay invested, according to Aware Super. 

Speaking at the Actuaries Institute summit, the super fund’s investment analyst, Shang Wu, said older members were around twice more likely to switch their investments and move to more defensive assets. 

Pension members were around 3.1 times more likely to switch than accumulation members as they were already in their pension and monitored their account balance much more frequently. 

Wu said, at Aware, it was the high balance and choice members who were more likely to switch and 3% of members made a switch. Of those, 30% of high balance members made a switch which was around one million members, which equalled to half a billion dollars in retirement savings. 

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“As the super industry keeps growing, the average balance of the average superannuant is likely to increase so this will be a growing issue for the industry and the system,” Wu said. 

“There have been a few recent policy changes which aim to increase competition and consumer awareness of super savings so that’s a good thing and lead to better member outcomes. 

“But there is a need for super funds to provide support to engage members to reassure them to stay invested during a period of market volatility. Guidance and advice will play a significant role.” 

Wu noted that during the sell-off during the COVID-19 pandemic, among the largely unadvised retirees aged 55 and over, 7.7% switched investment options, moving on average 84% of their account. This led to 11.2% of funds under management (FUM) being switched. 

However, when it came to the largely advised retirees aged 55 and over, only 1.8% switched investment options, which moved 33% of account balances on average. This led to 0.9% of FUM being switched.  

“If super funds provide long-term projections to members such as retirement income projections or projected retirement income confidence scores, members are more focused on long-term numbers and are less likely to focus on the short-term market volatility,” he said.