Iress partners with Griffith University to expose the double-edged sword of superannuation switching

Iress has partnered with Griffith University to release new research, which highlights the double-edged sword of the ease with which superannuation members can make changes to their investment options.

According to the research, there was a near tripling of members switching investment options within their superannuation during the COVID-19 induced market downturn, often resulting in poor choices which can create a knock-on effect to financial wellbeing and retirement savings.

The research, which analysed over 42,000 superannuation switch decisions from 1 January 2019 to 31 March 2021, identified a 50% increase in poor superannuation switching decisions as the pandemic progressed, with ‘bad’ switches defined as having a negative impact on superannuation balances compared to doing nothing.

Among those most negatively impacted were older members and women, who typically have lower superannuation balances.

Griffith University professor of finance, Mark Brimble, 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.”

Iress CEO, Andrew Walsh, said, “We partnered with Griffith University to better understand the relationship between financial literacy, access to advice, and decision making by superannuation members. What we found: during market downturns, people believe they are making good decisions when investment switching but they are often poor decisions absent of advice, and this can have long-lasting impacts on their finances.

“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. 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.”

Griffith Business School’s senior lecturer, Dr Kirsten MacDonald, said, “While better superannuation switching access and financial control is a good thing, that very 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.”

To access the full research report visit: info.iress.com/thewrongendoftheswitch