Despite the GFC still being in (relatively) recent memory, it would appear many Australians remain prone to making poor decisions during a financial crisis.
Reflecting this, research from Iress and Griffith University reveals a 50% increase in poor superannuation switching decisions as the COVID-19 pandemic progressed. Here, poor decisions are defined as those where the alternative of doing nothing would have impacted one’s superannuation balance more favourably (or less negatively, depending on your perspective).
The research was based on analysis of more than 42,000 super switches which took place between 1 January 2019 and 31 March 2021 and found that switching volumes tripled during the pandemic. At the worst points of the economic downturn triggered by COVID-19, over 70% of switches had a negative effect.
Worse still, poorly-timed super switches were most prevalent in member groups that could least afford the impact. These included later career members (between 51 and 60) and pre-retirees (61 and older), 59.5% and 69.2% of whom made poor switching decisions respectively.
Part of the problem, in addition to well-documented natural impulse to “panic sell” during a crisis, is increased access to online super switching tools along with a greater volume of online information being available to the average super member than ever before. The research posits a direct association between these trends and the amount of super switching that took place during COVID-19.
This isn’t an argument against giving members greater visibility of (and control over) their super, though – instead, the research recommends using technology to “positively intervene in decision-making of members potentially at risk” as well as a greater effort from trustees to improve the financial literacy and capability of the average member.
Unsurprisingly, the report also advocates for a “dramatic improvement” in access to quality financial advice, as there’s a clear correlation between advice and better financial decision-making during crises like these.
Commenting on the research and its recommendations, Iress CEO Andrew Walsh said that more can be done to “make it easy for super funds to guide and advise members’ financial decision-making.”
“At Iress,” he continued, “we’ve been providing funds with smart tools that can intervene when members are considering taking action to ensure they understand the long-term impacts of their financial decisions, as well as avenues to provide financial advice at scale. We’re also supporting superannuation funds with targeted financial education content suited for the social media era.”
Griffith University professor of finance Mark Brimble added: “We embarked on this research to examine superannuation switch timing, impact and the characteristics of those making switch decisions to determine who is more or less likely to make ‘good’ and ‘bad’ decisions.
“What we found was the ease with which members are able to switch through online channels unadvised, combined with heightened consumer awareness of fluctuations in financial markets and substantive media coverage through the pandemic, led to an increase in both switching activity and negative outcomes for members.”
You can download a full copy of the report here.
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