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How retirement wealth projections impact the behaviour of super fund members

CEPAR industry report

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The ARC Centre of Excellence in Population Ageing Research (CEPAR) released an industry report that investigates the impact of retirement income projections on superannuation contributions, investment choices and engagement from members.

“Australian workers rely on information from their superannuation funds to understand whether they are saving enough for retirement,” said lead author George Smyrnis, CEPAR PhD candidate at the University of Sydney.

“Research shows that the overwhelming tendency to focus more on the present than the future, along with difficulties people have making forecasts that require compounding, make it likely that superannuation fund members will have poorly formed expectations of their retirement wealth,” he said.

Conscious of this evidence, superannuation funds, including the Construction and Building Unions Superannuation (Cbus) fund, have begun to show members projected retirement wealth, so-called retirement income estimates (RIE).

The CEPAR research team, comprising George Smyrnis and Professor Susan Thorp from the University of Sydney, and Professor Hazel Bateman, A/Professor Isabella Dobrescu and Professor Benjamin Newell from UNSW Sydney, set out to understand the impact of this change by analysing the data from a trial in 2013, when Cbus sent around 20,000 members an RIE, along with their current balance, for the first time.

George Smyrnis said that the impact of this new message on members’ contributions, engagement, and investment choices was remarkable.

“Our analysis shows the RIE motivated additional savings, raised member investment choices, and raised engagement with the super fund,” he said.

“Overall, the presentation of the RIE encouraged higher rates of salary sacrifice saving, and higher average amounts of salary sacrifice and voluntary contributions, as well as changes in investment options, compared to those who did not receive the RIE.”

“The presentation of the RIE also encouraged higher rates of engagement between members and the super fund, particularly for advice, and for admin and processes related interactions. These results are important evidence that superannuation member disengagement can be partly improved by clearer communication,” George Smyrnis said.

“The results we found confirm that, for many superannuation members, the retirement income estimate is an important tool for understanding savings adequacy. This motivates super fund members to make adjustments that can substantially change their retirement outcomes.”

George Smyrnis; Hazel Bateman; Isabella Dobrescu; Benjamin Newell; Susan Thorp (2019): The impact of projections on superannuation contributions, investment choices and engagement. CEPAR Industry Report 2019/1.

The industry report is available online at cepar.edu.au/publications/reports.