Superannuation is one of the most important assets Australians will ever own. How each Australian is able to successfully invest a significant portion of their working-life earnings will determine where – or whether – they holiday, the kind of presents they buy their grandchildren, the car they drive, and even the extent to which they indulge in life’s simple pleasures.
Goals must be personal
Clearly, the outcomes of superannuation are unique to each individual. But for too long, the superannuation system has largely taken a collective approach to the actions it takes on behalf of working Australians.
Millions of Australians are saving for retirement, each hoping for an eventual outcome that will meet their very own financial needs and aspirations. Each Australian has – or could derive – a personal retirement funding goal, which could increase their likelihood of building the retirement they envisage for themselves.
But Australia’s superannuation funds simply do not adopt an approach to retirement saving that is informed by the personal retirement goals of each member.
One size does not fit all
Plainly, the majority of Australians with super do not choose how it is invested, instead accepting one-size-fits-all investment decisions made on behalf of the collective member base they are part of. This method ignores the inherent difference in financial circumstances between each individual and cannot be considered best practice. While on face value it might seem attractive to lump all members into an investment option with top past performance, there will still be part of the member base taking on too much risk at a time in their life that they can’t afford it.
Good investing considers the goals of the investor, utilises an investment approach commensurate with their unique risk position, and recommends a level of ongoing contributions suitable to guide the investor towards their end goal. Yet currently, the super industry at large has not been able to offer this retirement saving model to Australians.
Just as collective investment strategies for very personal goals can easily miss the mark, it is easy to focus solely on collective measures of success as well.
Far more important to the superannuation member is the personal progress of their superannuation relative to their unique retirement goals. In the same way that their investment choice and level of ongoing contributions should be determined by their personal funded status, i.e. their goal and how they are tracking toward it, their personal goal progress is also the ultimate ongoing measure of success for their super.
The impact of ignoring goals
Superannuation funds need to consider the specific retirement goals of their members and adapt as their members circumstances’ change along the way. These goals should be at the centre of every action taken by super funds, from their engagement programs to investment decisions.
As an industry, we must place more emphasis on the personal retirement goals of each individual member. Research shows the very act of members setting a retirement funding goal has a powerful impact on deeper engagement – superannuation members who use a goal-setting tool are 67 per cent more likely to make voluntary contributions, relative to those who do not.
Additionally, goal setting and tracking can reduce the extent to which members make impulsive decisions or overreact to market fluctuations. By providing context and tangibility to the act of contributing to super, goal setting can increase members’ commitment to their retirement funding goals.
Members deserve more
By implementing goals-based investing within superannuation, the industry will be able to provide Australians with the best practice investment guidance they expect throughout their retirement saving journey.
It is easily forgotten that over an Australian’s working life, only around 10-15 per cent of their final retirement saving outcome will be derived from their contributions to super. The vast majority of their retirement savings will be a result of the investment earnings on their contributions.
With this in mind, it stands to reason that every member should be supported to invest their super in a manner that best reflects their personal circumstances and is most likely to improve the chance of them reaching their personal retirement goal.
Jodie Hampshire, managing director Australia, Russell Investments
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