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Super switching a ‘double-edged sword’
The absence of advice has been the cause of poor-decision making when it came to switching investment options inside of superannuation accounts during the COVID-19 pandemic, according to research from Iress and Griffith University.
The research highlighted the “double-edged sword” of the ease that super members can make changes to their investment options.
According to the research, there was a near tripling of members switching investment options within their super during the COVID-19 induced market downturn, often resulting in poor choices which created a knock-on effect to financial wellbeing and retirement savings.
The research analysed over 42,000 super switch decisions from 1 January, 2019, to 31 March, 2021, identified a 50% increase in poor super switching decisions as the pandemic progressed, with ‘bad’ switches defined as having a negative impact on super balances compared to doing nothing.
Among those most negatively impacted were older members and women, who typically had lower super balances.
Dr Kirsten MacDonald, Griffith Business School’s senior lecturer, said while better super switching access and financial control was a good thing, that access could also be putting the retirement needs of those with lower levels of financial literacy and without access to advice at risk.
“It’s imperative that superannuation trustees and policymakers consider strategies to support members making more effective decisions about their superannuation,” MacDonald said.
Iress chief executive, Andrew Walsh, said the research found, during downturns, people believed they made good decisions but were actually poor decisions absent of advice.
“One of the recommendations from the research is that more can be done to make it easy for super funds to guide and advise members’ financial decision-making,” Walsh said.
“At Iress, we’ve been providing funds with smart tools that can intervene when members are considering taking action to ensure they understand the long-term impacts of their financial decisions, as well as avenues to provide financial advice at scale.
“We’re also supporting superannuation funds with targeted financial education content suited for the social media era.”
Mark Brimble, Griffith University professor of finance, said: “We embarked on this research to examine superannuation switch timing, impact and the characteristics of those making switch decisions to determine who is more or less likely to make ‘good’ and ‘bad’ decisions.
“What we found was the ease with which members are able to switch through online channels unadvised, combined with heightened consumer awareness of fluctuations in financial markets and substantive media coverage through the pandemic, led to an increase in both switching activity and negative outcomes for members.”
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