Smaller funds outshine megafunds in retirement quality-of-living stakes

Members of smaller super funds are not only more satisfied than those who are part of much larger funds, but they also enjoy a higher standard of living in retirement, says new research from financial services research house CoreData.

The research shines a light on the blanket assumption that smaller funds do not perform as well as megafunds and may test the regulator and government’s demands for smaller funds to merge to ensure better performance for members.

Super funds with less than $20 billion in assets outperformed big funds on member satisfaction by nine per cent, according to the survey of 4288 Australians over the age of 45.

And members of these funds experience higher levels of satisfaction in retirement, says CoreData, with small funds gaining a score of 63 for retirement satisfaction, compared with 57.7 for big funds.

Read more: Most exhaust their super years before they die, says ASFA

It seems smaller funds may communicate better with their members, too, helping them with retirement planning and “preparedness for retirement”.

On this rating, small funds scored 53.2 compared with the big funds’ score of 46.9 – a difference of 13 percentage points, the biggest uncovered by the research.

“Members of small funds are not only much more prepared for their retirement, but they are also more satisfied with the retirement outcome when they get there,” CoreData principal Andrew Inwood told the AFR.

“Members of small funds are more likely to be doing the right things before they retire and to have a better retirement experience because of it.”

Mr Inwood said overall, respondents seemed happier with higher levels of customer service from smaller funds, with 85 per cent agreeing that their super provider was interested in helping members, compared to 72.9 per cent of large fund members.

“Members of small funds feel much more positive towards their super fund,” he said.

Read more: Super funds fight for changes to reforms

Smaller funds were also more trusted by their members than larger funds, with almost 92 per cent saying they trusted the fund with their “financial future” compared to 80 per cent of big fund members.

Nine in 10 (90 per cent) of small fund members also agreed their fund had a culture of service, compared to 82.5 per cent of megafund members.

“Members of small funds receive what they believe is adequate information about their super fund, how it’s performing and how they’re tracking towards their retirement goals,” said Mr Inwood.

“This, in turn, leads to a higher level of trust in the fund.”

Overall, smaller funds “ultimately lead to better retirement outcomes”, the research revealed, and members of smaller funds had higher standards of living in drawdown phase.

The research showed 73.3 per cent of retiree members of small funds were ‘comfortable’ or ‘very comfortable’, compared to 52.6 per cent of big fund members.

More small fund members were more confident their savings would last their lifetime, with 38.1 per cent expecting their nest egg to see them out, compared to 21 per cent of big fund members.

Recently, the Australian Prudential Regulation Authority (APRA) called for smaller funds to merge, after its assessments found they had disproportionately underperformed on investments.

“Bigger is best for super,” wrote superannuation minister Jane Hume in a December 2019 AFR column.

Read more: Where super stashes are flying – and where they’re floundering

“For many underperforming funds, the inescapable conclusion of trustees will be that their members are better off being part of a bigger and better fund, and they should seek a merger partner.”

Are you a member of a small fund? Are you satisfied with your super fund? Why not tell our members which fund you’re with?

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Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.
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