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Why Super fund fees and returns don’t drive member outcomes

An article by Jason Andriesse, Managing Director of CoreData

Fees and returns are important drivers of a member’s super balance. They’re also easy to measure and for members to understand. That’s why super funds have focused on delivering competitive returns and low fees for their members.

But CoreData research shows that fees and returns are not important drivers of retirement outcomes.

In the real world, retirement outcomes are about more than money. They’re about more than the super balance; and they’re about more than fees and returns.

In fact, when we define retirement success as members feeling prepared, confident and satisfied, we see that there is a weak statistical relationship between super balance and a member’s retirement outcomes.

Our Best Possible Retirement Index provides a standardized measure of retirement satisfaction. It provides insight into what’s really important to Australians.

The index produces a score from zero to 100. The mean score is around 50, with 100 being perfect retirement satisfaction and zero being the absolute worst-case scenario.

And this chart shows that super balance is not really a driver of retirement satisfaction at all.

On the vertical axis we have household wealth, increasing from the bottom up. On the horizontal axis, we have the Best Possible Retirement score for retirees, increasing from left to right. Each dot represents an individual respondent in our quant study.

If super balance was a major driver of retirement satisfaction, then we would see a strong positive correlation. We would see a linear increase from bottom left to top right. Poor households would have low index scores and rich households would have high scores.

But we don’t see that at all. In fact, some of the most satisfied retirees are also the poorest.

It’s more than account balances and fees

So if not returns, what should super funds be delivering to their members to help improve retirement outcomes?

Well, the research gives us a clue. In this chart we compare the retirement outcomes of people who have an active relationship with a financial adviser with those who don’t.

Again, retirement outcomes are measured using our Best Possible Retirement Index. The higher the score, the better the outcomes.

When we compare the blue bars, we see that retirees who have an adviser have much higher retirement satisfaction. Advised retirees score 64 on the retirement satisfaction scale. The unadvised score less than 49.

A similar story emerges for pre-retirees, depicted by the orange bars. Advised pre-retirees have significantly higher feelings of retirement preparedness and confidence. Advised pre-retirees score 58.5, while the unadvised score just 48.1.

So the data is clear. Retirees who have an active relationship with a financial planner enjoy measurably better retirement outcomes. Super funds can enhance member outcomes with financial advice, but not with investment returns.

Editor’s note; while the above would probably surprise those that don’t have a close relationship with an adviser, it probably doesn’t surprise you. We have long known that our “value” extends well past investment returns.


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