CLUSTER PROJECT 3: BETTER SUPERANNUATION OUTCOMES: INFORMATION, OPTIONS, AND SHORT-TERM AND LONG-TERM MEMBER BEHAVIOUR
A key element in the structure and performance of Australia’s superannuation system concerns the nature and scope of member behaviour as regards the choice of savings options and investment vehicles, and their response to changing personal circumstances and financial markets. Many participants in superannuation plans give responsibility for making such choices to the sponsoring institution (the employer, the superfund, etc.). Notwithstanding the significance of ‘passive’ participation in the Australian superannuation system, little is known about the behavioural histories of superannuation plan members over the short, medium, and longer terms, or how superannuation plan members react to changing macroeconomic and financial market circumstances. Academic research has found it difficult to situate observed behaviour in the context of members’ longer term behaviour. This cluster project seeks to better understand patterns of active versus passive behaviour, short- term and longer term behaviour, and the responses of members to events as well as advice given by the superannuation fund.
Principal Researchers: Professor Gordon Clark (Monash University and University of Oxford) and Professor Paul Gerrans, (University of Western Australia)
Research Team: Dr Jun Feng, Dr Carly Moulang, (the late) Dr Maria Strydom, Dr John Vaz and Dr Jayasinghe Wickramanayake, in collaboration with Professor Noel Whiteside (University of Warwick)
This study provides a review of individual retirement savings decisions within the Australian superannuation system, and analyses when and why investors make (or don’t make) changes to their superannuation savings. Using the Mercer database, our preliminary analysis of member investment activity over the 2003−12 period suggests that some key demographic factors (gender, age, balance, income) are associated with investor behaviour. Other factors such as financial literacy and internet access also appear to explain investment activity. The most compelling finding is the lack of activity. The majority of members do not make changes even over considerable periods of time.
This paper reviews individual retirement savings decisions focusing on the contributions or savings behaviours. It examines lessons learned from international retirement saving systems and the limited number of studies examining the Australian superannuation system, to provide a better picture of who and why people make (or don’t make) voluntary contributions. Using the Mercer database, preliminary analysis of member contribution behaviours in Australia indicates consistently declining voluntary post-tax contributions across all age groups over the 2002−12 period.
This is the first study using employer-level data to analyse long-term trends in voluntary superannuation contributions in Australia, therefore facilitating the formulation and assessment of superannuation policies. In addition to comparing the role of demographic and social-economic factors in predicting contribution behaviours, we identify the dynamics between salary sacrifice and post-tax contributions, and between past and current year decisions. Interestingly, we identify declining participation in both pre- and post-tax contributions in recent years. We also find that age, income and gender (male) all have a positive association with pre-tax contributions participation whereas for post-tax contributions, income and male gender have a negative effect on average.
This paper examines the results of a comprehensive study of the advice which participants in Australian defined contribution (DC) saving schemes have sought from their plan sponsors (agents) over time. Whereas previous research on this topic has focused upon fee- for-service advisers, our focus is on advice provided by the agents of DC plan sponsors that have no direct interest in the outcome of calls or web-based inquiries. Our study of 430,000 DC fund members over the 2004−13 period indicates that the predictors of intra-fund advice-seeking are gender (female rather than male), age (older than younger), account balance (larger than smaller), and experience-related (longer rather than shorter).
Using longitudinal data based on a sample of member accounts provided by a major Australian superannuation fund, we examine the question of whether established gender-derived savings gaps are likely to diminish in the future. We find that older males increasingly dominate the higher earnings groups and, although there is some evidence that women’s balances proportionate to men’s are improving over time, the rate of improvement is virtually imperceptible. There is little sign that young women’s engagement with the labour market in Australia is changing, with career breaks and part-time working by women remaining the strategy of choice for the care of babies and young children. The compound interest accruing to lower balances in mid-working life exacerbates the gap between male and female super savings which expands over the final years before retirement.
- Retirement Savings Trajectories: An Analysis of the Experience of Fund Members, Part One: Experience, WP 2015–07
This paper examines the extent to which changes in individual wealth accumulation trajectories in retirement savings are associated with demographic and social factors. We investigate member-initiated investment changes to their superannuation accounts, distinguishing between investment changes to future contributions and the accumulated balance. Our findings indicate large gender differences across both types of investment changes and that members with higher balances, larger contributions and greater time in the fund are more likely to make changes. Only around one-fifth of investors make some sort of investment strategy change over the 10-year period examined, and men consistently make more investment changes than women.
- Retirement Savings Trajectories: An Analysis of the Experience of Fund Members, Part Two: Individual and Peer Moderation Effects on Member Investment Choice, WP 2016-07
In view of the evidence indicating that the majority of individuals do not seek professional financial advice, we investigate whether workplace peers may be influential in member retirement savings investment strategy behaviour. We explore three different ways that peer influence may manifest. Consistent with existing literature which has examined other retirement savings choices (participation and savings rates), we find that peer behaviour is an important influence.
This paper identifies the categories, drivers and timing of advice-seeking by defined contribution (DC) plan participants as they approach retirement. Empirical analysis of a large Australian database indicates that the relative significance of three categories of advice-seeking changes with age, with administrative matters dominating investment matters and retirement planning prior to the age of 40 years. Retirement planning becomes the most important advice-seeking category from the age of 55–59 years. Other key findings include: changes in economic conditions are not a significant driver of changes in advice-seeking on retirement planning: and men, rather than women, are more likely to seek investment advice, especially as their account balance increases in value. We also examine the implications of these findings for the design of pension plans in their engagement with older participants.
This paper provides a preliminary analysis of performance of employee’s workplace superannuation accounts. We utilise a diverse sample of Australian workers drawn from a large national superannuation trust over a time period spanning the global financial crisis. We consider performance in terms of growth in a member’s account balance and the relative role of gross contributions and investment returns in the account balance. We investigate the performance of the minority of members who change their investment strategy relative to those who remain in the sub-plan’s default investment option. Within a savings scheme which is fundamentally longterm, we highlight the vagaries of short-term performance which is influenced by factors within and external to the member’s control.
This paper investigates individuals’ investment behaviour in their retirement savings surrounding milestone ages. Age is expected to play a key role in influencing investment choices, primarily through the risk of the investment strategy reflected in the asset allocation. Less clear is what particular age this occurs at or whether it is a smooth, incremental adjustment. We investigate whether milestone ages, that is those ending in “0” or “5”, play a role in the propensity to make investment changes. We utilise a large Australia retirement savings fund which provides the history of investment changes of a diverse sample of workers. We do find a clear role for age in the propensity to make investment changes. Pervasive milestone effects are not observed but we do observe some ages suggestive of milestone effects which are otherwise inconsistent with the expected age relationship. We also find a difference between genders surrounding the 50th milestone age.