Australian Industry Superannuation Default Funds: Examining Sequencing Risk for Baby Boomers

The growth of superannuation (private pension systems) is a global phenomenon, which has been intended to counter the financial burden of an ageing population. Superannuation is part of the Australian government’s retirement income policy, as it is expected to supplement the Government Age Pension and other private savings in providing sufficient retirement funding for the nation. With the impact of the 2008 Global Financial Crisis (GFC) leading to reduced share market asset values, corporate failures and consequently reduced retirement funds, superannuation is increasingly the focus of reform initiatives. In Australia, superannuation is the legislated process of employers depositing a percentage of employees’ earnings into superannuation accounts for the employees’ subsequent retirements. Employers are required to identify an ‘employer nominated fund’, or ‘MySuper’ fund, to receive deposits where no fund choice has been advised. Industry superannuation accounts represent 17% of the overall trillion dollar asset base, with the majority of ‘industry’ superannuation fund members investing in high risk ‘default investment strategies’. Motivation for this research reflected concern for the increasing numbers of ‘baby boomer’ retirees not only impacted by the shortened time frame of legislated super savings opportunity, but also significantly impacted by the GFC on the cusp of their retirement. The need to understand how default funds cater for these types of ‘life cycle’ issues reinforced the imperative for this research.