Retirement Savings Trajectories: An Analysis of the Experience of Fund Members. Part One: Experience


30 August

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.*

Individuals face an array of choices in terms of the occupation they pursue and the employer they select. These choices, which are constrained by individual characteristics including education, age and skill, as well as external factors such as the state of the economy, are pivotal in setting the individual’s consumption and wealth accumulation trajectory over their life cycle.

Individuals can alter their retirement savings trajectory, and ultimately their retirement standard of living, through choices they make, most notably through additional savings and the investment strategy applied to these savings. The investment choices available to fund members are a feature of the particular superannuation fund they are enrolled in, and the provider of that fund. One key dimension of investment choices is whether changes to such choices are applied to future savings (contributions allocations) and/or to accumulated savings (asset rebalancing). We identify these two types of choices as Contributions Investment Changes (CICs) and Balance Investment Changes (BICs).

We investigate investment activity by examining an administrative database provided by a large superannuation fund which includes a large national cross-section of employers and employees from a variety of industries.
Our findings indicate that members are more likely to make BICs (14.5 per cent) compared with a CIC (13.2 per cent). A relatively large gender gap is evident in both choices with 14.6 per cent (10.9 per cent) of males (females) having made a CIC and 16.4 percent (11.5 per cent) a BIC. The proportion making a CIC or a BIC increases monotonically with age. A similar pattern is evident in relation to membership length, and a disproportionate amount of investment choice activity occurs among those in the top third of those ranked by the level of balance or contributions.

A member’s balance is a clear discriminator for those who make a CIC and a BIC, with 18.9 per cent of those in the top third of balances having made both choices compared with only 1.5 per cent of those in the bottom third having done so. The same pattern, though less pronounced, is revealed when comparing activity by contributions.
While the difference in the rate of CICs between men and women remains fairly stable over the sample period, in 2006−07 there was a much smaller difference in the proportions making BICs. This appears to be due to a disproportionate rise in female members changing investment strategy.

Analysis of BIC activity by age over the sample period, links to the above suggested explanation for the increase in proportion of female members in 2006−07.The increase in BICs is much larger for the 50s and older age group and the increase in activity by age widens over time for the 50s and over age group. The gap widens from 2006−07 and is evident for CICs as well.

CIC, BIC activity by age and financial year

The 2008−09 increase in the proportion of members changing their BIC can be linked with the global financial crisis. While the increase in proportion was around 40−50 per cent, it remained relatively small in absolute terms. A relative peak in CICs only occurred in the 40s and 50s age groups. The global financial crisis appears to be the catalyst for investment change, but this was only restricted to those with closer proximity to retirement and, possibly, larger balance sizes. CIC activity was largely constant until 2008−09 when a relative peak for all but the two shortest membership lengths is observed. Post global financial crisis, CIC activity declines before increasing in 2011−12. The two peaks in BIC activity are observed across all membership lengths.


Our analysis of member behaviour indicates that approximately one-fifth of investors make some sort of investment strategy change (CIC or BIC) over the substantial 10-year period examined. While our results are consistent with prior literature in reporting low levels of activity by a majority of investors, this is not necessarily an indication of a lack of engagement. Remaining with a default investment strategy can be a deliberate, considered choice and our data does not include this information.

We document large gender differences over the sample period, with men consistently making more CICs and BICs than women. Our analysis also suggests that the incidence of changes to investment strategy increases with time in the fund and that those with higher balances and larger contributions are more likely to make changes. However, this appears to be disproportionately among those with much larger contributions and balances. Finally, the policy changes announced in May 2006 appear to have been a significant event associated with an increase in investment activity across a relatively large proportion of members.

*We would like to acknowledge the invaluable research assistance of Jacqui Whale, UWA Business School.