Record levels of superannuation fund members are changing funds, a sign that people are more interested and knowledgable about their super.

The number of people intending to switch funds has surged to a 13-year high, according to research from Investment Trends.

Super members were reading fund material, going on fund websites and forming views about fund performance, said Irene Guiamatsia, Investment Trends research head.

“What we’ve seen is that COVID sparked a rise in engagement levels with more people interacting with their funds and since then it has been growing year on year,” Ms Guiamatsia said.

Other factors that have boosted engagement levels include APRA performance tests that hit funds underperforming two years in a row by barring them from taking in new members till they improve performance.

Fund mergers are also encouraging that engagement, Ms Guiamatsia said.

Switching boosts industry funds

This increased engagement is triggering high levels of switching between funds, as members form views on fund performance or suitability.

However, new measures stapling workers to funds for life unless they actively decide to switch don’t appear to be working as expected.

“In the eight months since that rule, it doesn’t seem to be the case that people stick to their existing super fund when they change jobs,” Ms Guiamatsia said.

Data produced by the ABS showed that job changing picked up through 2022.

“Now you can see that with a year’s delay, we are now measuring a significant increase in switching and intention to switch as a result of that increase in labour mobility,” Ms Guiamatsia said.

She said that another driver of fund switching has been performance.

“People receive a statement and they don’t see the performance number they expected to read.”

So that underperformance leads people to look for a fund that is turning in a better outcome and they will move to it.

As time goes by, member switching is increasingly within the industry funds sector.

Of those intending to switch, Investment Trends found that 45 per cent plan to do it within the industry funds sector compared with only 23 per cent back in 2020.

Meanwhile, intentions to switch within the retail funds sector has fallen from 36 per cent to 20 per cent over the same period.

Industry funds are attracting far more customers from people switching from retail funds than vice versa.

“What we are seeing in 2023 of those planning to switch, about 23 per cent plan to go from retail funds to industry funds while the other way around is about 9 per cent,” Ms Guiamatsia said.

An increasingly engaged fund membership is now switching between investment options in the same fund. Ms Guiamatsia said 2.3 million members intended to switch between options this year.

Of those planning to change, 23 per cent plan a move to a more defensive option while 35 per cent want to move to a more aggressive growth option.

About 7 per cent plan to move to a similar option with better performance, about 9 per cent plan to go to a more socially responsible option, and 12 per cent will look for a similar asset allocation that has a lower fee structure.

Getting help with super performance

Antoinette Mullins, principal with advisory group Steps Financial, said she was seeing many more clients switching super funds.

“Ten years ago a client would come to me and say ‘please help me with cash flow or please help me with wealth creation’.

“These days people will often say ‘I’ve read my super statement and I’m pretty sure it’s a bad fund but I don’t know how it compares with others in the market’,” Ms Mullins said.

So those more engaged clients are coming for help in finding a better performing fund.

Not also will they look at performance they will look at fees and use that to help establish whether they are in a good fund or not, she said.

Ms Mullins says fund performance should be watched, but it is not good practice to make a call on moving funds on just one year’s performance.

“Chasing returns over any given period is not a way to go,” she said.

If you are somebody considering switching your super fund, “look for a fund with consistent, good returns over time”.

When choosing a fund it’s good practice to compare it to benchmarks for similar asset allocations and also compare it to market returns generally.

Don’t be frightened by one bad year

Last year was a bad one for superannuation because stock and bond markets fell, so don’t just look at one year’s performance.

Look at performance over three, five, 10 and more years to get a considered view on performance.

“Also have a look at the investment option inside your super fund and try to understand what that means. What are the allocations to Australian and international shares and other asset classes?” Ms Mullins said.

Then make your comparison on the basis of that understanding.

“The balanced option is generally 70 per cent growth and 30 per cent defensive, but those figures can vary.”

So make sure you look beyond the label of a fund to see what it is actually invested in and make decisions by comparing that to a fund with similar assets.

The New Daily is owned by Industry Super Holdings