Retirement
Surge in super switches following COVID-19 pandemic
Members are switching superannuation funds three times faster than usual as the COVID-19 pandemic sees losses across the industry, new research has found.
Surge in super switches following COVID-19 pandemic
Members are switching superannuation funds three times faster than usual as the COVID-19 pandemic sees losses across the industry, new research has found.
According to Colonial First State, 39 per cent of members who switched their super switched to cash. Against this trend, the second most popular investment category was Australian shares (26 per cent). Interestingly, the number of members who switched to growth assets (including Australian shares) was almost exactly the same as the number that switched to cash.
Switch call volumes peaked on Monday, 23 March, after the S&P/ASX shed 5.6 per cent to 4,546, down by 36.5 per cent from its peak just over two months ago.
The market reaction was in response to news that businesses across the country should prepare to scale down their operations. CFS experienced the highest number of switches to cash (65 per cent) and the lowest percentage of switches by dollars to growth assets (9 per cent) on this day.
Commenting on member behaviour, Scott Tully, general manager for investments, said: “We recognise the importance of being focused on investing for the long term, and we’ve been talking to our members directly about this to help them navigate what is understandably a concerning set of circumstances.
“We saw some people switching to cash, which means those members missed out on upside as markets rebounded. But we’re encouraged that many of our members also stayed the course and remained focused on the long term.
“Fear of volatile markets can drive decisions that might not be in a member’s long-term interests. The switching activity we have seen is directly linked to how the Australian market is performing on the day. However, selling after markets have fallen means that you lock in those losses and longer-term investment outcomes may be more difficult to achieve.”
Mr Tully said it was also interesting to see that there were as many switches to growth assets as to cash during the month of March.
“Our data showed that while we had many super members who were spooked by the volatility, there were just as many people looking to invest after the market had fallen. This suggests there are members who understand that super is a long-term investment but are prepared to take advantage of lower prices in the middle of a crisis.”
Other key findings from the March data included:
- Pre-retirees (members aged 50–64) were the most likely to switch to cash (47 per cent of all switches to cash), followed by wealth accumulators (members aged 40–49), with 19 per cent of all switches to cash.
- Retirees (members aged 65+) were the least likely to switch to growth assets (9 per cent of all switches to growth assets).
- Younger members (aged 49 or under) were more likely to switch to growth assets than cash (45 per cent of all switches to growth assets were by members aged 49 or under, with this group comprising only 34 per cent of those switching to cash).
- Switches to growth had a lower average amount switched than switches to cash. The average switch to growth was $19,000 compared with the average switch to cash of $99,000, suggesting that switching to growth was more of a partial reallocation of members’ portfolios.
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