Should school leavers be stapled to balanced options?

Superannuation trustees need to consider if allocating school leavers to a default balanced super fund meets their best interest duty.

Many school leavers were starting work and being allocated into their employer’s chosen super fund, likely a balanced option, without checking if it was right for them.

While there was now a performance test available for MySuper superannuation funds, this failed to take into account members’ age and risk circumstances.

Mark Beardow, co-chief investment officer at Darling Macro, said he was currently encountering this scenario as his two daughters were starting work.

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“School leavers either feel confident to choose a fund or they trust their employer with their recommendation and think they will look out for them,” Beardow said.

“With the new stapling rules, people are less likely to change fund so it is more important to get it right first time. It’s not something school leavers are probably thinking about, their next 10 years will be about spending and rent, so it needs to be a simple fund, focused on growth assets, that they can set and forget.”

He said the heatmaps introduced by the Australian Prudential Regulation Authority were a good idea but didn’t necessarily reflect every circumstance.

“The heatmaps show which funds are performing well but are they showing the right metric for your circumstances? Rather than just the top 10 funds, they need different categories for age groups or risk levels which would give a clearer picture, it is a work in progress.

“Australian Super Balanced, for example, is among the best performers but, as impressive as the performance is, is the right for the next 40 years? I think school leavers should steer clear of balanced options and for the trustees, is it in the best interests to allocate someone to that fund and how do you measure that?”

He said the funds which were popular with younger members usually had a different asset allocation to reflect the smaller balances and longer-term time horizon of its members.