Under the MySuper legislation, a MySuper default investment option may be a life-cycle fund based:
- Only on age (generally referred to as Life-cycle Mark 1, Age-Based or first-generation defaults);
- On other ‘prescribed factors’ such as wage, balance and projected retirement balance (generally referred to as Smart Defaults or next-generation defaults).
The Productivity Commission has that
FINDING 4.3 Well-designed life-cycle products can produce benefits greater than or equivalent to single-strategy balanced products, while better addressing sequencing risk for members. There are also good prospects for further personalisation of life-cycle products that will better match them to diverse member needs, which would require funds to collect and use more information on their members.
Well-designed Smart Defaults are more efficient at increasing average retirement balances and managing sequencing risk as retirement approaches at or below current levels.
It’s time that superannuation trustees evolved their default offering from one-size-fits-all defaults. They no longer meet community expectations or standards. Imagine if a financial planning firm placed all their clients in the same investment for life regardless of balance, retirement prospects, investment horizon or age – they would be banned.
Trustees should follow their own suggestion to choice members and start taking these factors into account in order to act in members best retirement interests.