The superannuation system is on track to serve its purpose as it matures, according to a report released jointly by Vanguard and Sunsuper.
“Having grown from modest beginnings to near-universal coverage of the working population and over $2 trillion in assets over the past 30 years, the system is on its way to reaching maturity as a vehicle for all facets of accumulation, management and drawdown of retirement assets,” says the How Australia Saves report.
“Amid ongoing discourse about the system’s efficacy in the face of regulatory change, varied levels of member engagement and volatile investment markets, How Australia Saves shows that by and large the system is delivering on its core purpose,” said Vanguard’s Senior Manager Superannuation Policy, Paul Murphy, who is also co-author of the report.
Super fund members are divided into there distinct groups in the report:
- Lifecycle investors – the largest group, invested in the default MySuper strategy (which has a built-in incremental change to a more conservative asset allocation after age 55).
- “These members experienced very uniform outcomes with annualised 5-year total returns to 30 June 2016 tightly clustered around 8.3 per cent per annum, with low variability of returns relative to the major underlying asset classes of Australian and international equities and Australian bonds.”
- Diversified balanced investors – investors who chose one of the diversified investment options (Growth, balanced, etc. – options which include re-balancing but without asset allocation changes based on age).
- “Their investment experience was more broadly dispersed than those of lifecycle investors, reflecting the fact that different diversified options have quite distinct asset allocations catering to different risk preferences.”
- Self directed investors – who choose their own investment options, this group had the greatest dispersion of risk and return outcomes.
- “With the most striking result being that very few of them experienced better return outcomes than the default lifecycle strategy over the 5-year period measured.”
“Comparing the outcomes across these three distinct investor types sends a strong message about the important role that professionally managed, well diversified default products and choice architecture play in the superannuation system,” said Mr Murphy.
Information on the drawdown phase was limited, which Mr Murphy ascribed to the relative youth of the super system and the demographics of Sunsuper’s membership.
“As the system continues to mature the report will provide further insight into the drawdown phase, however looking at this year’s analysis already shows those in pension mode are drawing down their assets at a modest median rate of 6 per cent,” he said.
“This is consistent with recent research into pensioner drawdown behaviour and contrary to the notion that self-funded retirees are inclined to deplete their superannuation quickly to in order to ‘double dip’ into the age pension.”
Mr Murphy said Vanguard’s aim with future How Australia Saves reports will be to gain a deeper understanding of how the super system and super funds can continue to imporove member outcomes
“We will also start to see the impact of the significant super reforms that come into effect from 1 July 2017, and of other initiatives such as the First Home Owner Super Saving scheme announced by the Government in last month’s federal budget,” he said.