Choice churn - Survey points to second wave

The full impact of Australia’s new choice of fund regime may not be felt for more than 18 months.

That is one of the bottom line findings of research conducted by Mercer Human Resources Consulting as part of its Benefits Outside the Square survey which has found that 10 per cent of employees are considering switching super funds in the next two years, with 14 per cent saying they are somewhat likely to switch funds.

The 10 per cent churn rate indicated by the Mercer survey will have come as little surprise to most superannuation industry executives because it is consistent with the 7.5 per cent churn predicted by the Association of Superannuation Funds of Australia earlier this year.

What is of more concern, however, is the suggestion that a further 14 per cent might be prepared to switch funds further down the track. In fact, it is this group of “followers” that Mercer’s National Business leader, David Anderson, sees as particularly problematic.

What the Mercer survey shows is that 10 per cent of employee respondents said they were very likely to change their super fund if they had the opportunity, irrespective of whether they remained with their current employers.

The so-called “followers” by comparison represented a further 14 per cent of employee respondents who said they were “somewhat likely” to change.

The bottom line, however, is that the result suggests that around 24 per cent of respondents will give at least some degree of consideration to changing their fund.

Anderson is pragmatic about the immediate impact of choice of fund, accepting that the initial rate of churn will be comparatively modest. Less easy to determine, however, is the number of so-called “followers”, with Anderson acknowledging that the outcome is likely to be affected by the relative performance of super funds over the period.

He agreed that if super funds performed soundly through the period immediately following the implementation of choice, then employees would likely see less reason to switch funds.

What the Mercer data has told him, however, is that there are more men than women among the 10 per cent of employees who have indicated they are considering switching funds in the next two years.

In fact, the data suggest that men have a higher propensity (26 per cent versus 19 per cent) than women to switch, particularly those who are dissatisfied with their current superannuation arrangements, hold multiple super accounts and have higher account balances.

By higher account balances, Anderson said he meant those with more than $100,000 — something likely to give them a keener awareness of their superannuation fund’s features and relative performance.

The data showed that 32 per cent of those with $100,000 plus in superannuation were likely to change versus 18 per cent who hold up to $10,000

Anderson said Mercer’s findings showed a need for superannuation funds to implement member retention strategies which concentrated on three areas:

* Understanding members’ needs;

* Offering desirable benefits and high quality member services;

* Assisting and educating members with higher account balances in strategies to smooth the effects of negative returns and fees.

One of the key findings of the Mercer survey is that there is a direct correlation between the level of information provided to superannuation fund members and their level of happiness.

“The more members know about their super fund’s features, the more likely they are to be satisfied,” it said. “In other words, informed members are happier members. Unhappy members are looking for reassurances about their choices and their accounts’ bottom line.”

Given the relative preparedness of men to switch superannuation funds, the survey has thrown up the interesting finding that men are more interested than women in pursuing investment options which achieve the highest possible returns.

It found that 54 per cent of men compared with 46 per cent of women were seeking the highest possible returns, whereas more women than men were likely to seek personalised financial advice.

Reflecting higher levels of conservatism, more women than men valued investments that provided the lowest risk.

The survey found that recent negative investment returns and consistent messages about Australia’s retirement savings shortfall had had an impact on fund members, with the result that they were looking for greater control over their superannuation investments and to more actively engage in achieving higher returns.