Super switchers end up worse off
SWITCHING s uperannuation funds is a waste of money and an expensive mistake with most people earning lower returns and almost half paying higher fees, according to a new report.
Actuary Rice Warner found 56 per cent of super fund members who switched to a different fund earned lower returns than they would have earned in their old fund. A further 49 per cent of “switchers” paid higher fees in their new fund.
In the first research of its kind, Rice Warner found of those people who switched funds in 2015, 72 per cent switched to a retail fund, 20 per cent switched to an industry fund and 6 per cent switched to a public sector fund.
Overall, switchers paid an extra $137 million a year in fees and missed out on $284 million in investment returns, compared with staying put.
Rice Warner researchers Nathan Bonarius and Alun Stevens said people who switched to a retail or bankowned fund suffered the biggest losses. About 80 per cent of people who switched to a retail fund earned lower invest- ment returns and 59 per cent paid higher fees.
The average loss of investment returns for someone who switched to a retail fund was $925 a year and the average fee increase was $263 a year.
Losses were also experienced by industry fund members. About 36 per cent of people who switched to an industry fund earned lower investment returns and 50 per cent paid higher fees.
The average loss of investment returns for someone who switched to an industry fund was $210 a year and the average fee increase was $83 a year.
The research, which was commissioned by Industry Super Australia, also found the most switching activity happened about age 30, then tapered off until peaking just before retirement.
ISA spokesman Matthew Linden said the results indicated people switch funds without understanding repercussions.
“The data suggests consumers switching super funds are not making rational choices,” Mr Linden said yesterday.
“Overall, there are far less switchers to not-for-profit funds despite on average delivering better net returns.”