KEY POINTS:
More than half of the superannuation assets in Australia are invested in funds which are set up as a default option and New Zealand is following in the footsteps.
Sydney-based retirement policy expert Hazel Bateman told industry experts at a forum in Auckland yesterday that of the A$1 trillion in superannuation assets held by Australians, 55 per cent were in the funds that providers selected when no decision was made by the investor.
"Choice of funds has really been a fizzer in Australia."
Bateman, who is based at the University of New South Wales, said there had been a proliferation of funds over the past 15 years.
The average scheme had 100 choices an investor could make. Yet more than half of the assets were in the default schemes selected by the provider and of those in non-profit schemes, 90 per cent was in the standard default option.
"In Australia, there is a plethora of choice but people are really ending up in the default option."
Bateman said the issue was concerning because investors might not be in the right fund and might end up not having enough money to maintain their lifestyle in retirement if they also failed to make good post-retirement choices.
Bateman said changes around the world had shifted the decisions for retirement savings from the Government to individuals and there were a lot of assumptions being made about the choices individuals took up.
"A lot of guys who design policy are economists who use a life cycle model to design it.
"They assume people will save while they work to maintain consumption levels when they retire.
"They set up a savings scheme and assume everyone is capable of deciding which provider to choose which scheme and fund. They assume we have got a perfect knowledge that we are all actuaries.
"This is completely incorrect. If left to our own devices we have sub-optimal savings," she said.
New Zealand retirement policy expert Michael Littlewood said it was difficult to know whether investors were actually choosing the default option or just letting themselves go into it.
He suspected that in Australia many were choosing the default as it was set on a balanced fund and was likely to be appropriate for a wider range of people.
He believed for New Zealanders, it was likely to be a no-choice decision that was landing them in the six default funds which had been set up.
IRD figures for the year to June 30 showed 38 per cent of the 716,000 people enrolled in KiwiSaver were in the default funds and a further 13 per cent were in employer selected schemes.
Littlewood believed the New Zealand default option was selected for political reasons rather than investment reasons as the Government did not want people to see it as being a poor policy because of negative returns.
