The inclusion of estimates of lump sums and income streams at retirement in super fund member statements can have a significant impact on member behaviour, new research has found.
Until recently, most funds gave members only their current balance, leaving it to members to try and work out what their future lump sum or income stream might be.
In 2013, Cbus sent around 20,000 members a retirement income estimate, along with their current balances, for the first time. Cbus gave researchers from the ARC Centre of Excellence in Population Ageing Research access to de-identified data, to study the impact.
The researchers compared a group of Cbus members who received the retirement income estimate (RIE) with a group that did not. They measured the impact for the first year of implementation.
They reported that the impact of this information on members’ contributions, engagement and investment choices was “remarkable”.
The proportion of members making salary sacrifice contributions was 6.8 per cent among those receiving an RIE and 5.1 per cent among those not receiving it – a 33 per cent difference.
Of all members making salary sacrifice contributions, members receiving an RIE contributed an average $5264 during the year under review, compared with $3977 among those who were not receiving an RIE.
The proportion of members making investment option changes was also higher among those receiving RIEs – 1.3 per cent, compared with 1 per cent for those not receiving RIEs.
The RIE group tended to move from defensive options to growth options. Members who received RIE also increased their contact with Cbus.
What the research indicated was that the RIE is information about savings adequacy that motivates adjustments that can substantially change retirement outcomes.
Members of most superannuation funds must rely on regular member statements that only show their current account balance. The overwhelming tendency to focus more on the present than the future, along with the difficulties people have making forecasts that require compounding, make it likely that members will have poorly formed expectations of their retirement wealth.
Because the analysis measured the RIE impact for the first year of implementation, a remaining question is whether these changes persist over ensuing years, in ways that would make substantial changes to retirement wellbeing.