How academic research can inform default superannuation fund design and individual financial decision-making

Abstract

Defined contribution superannuation plans require fund members to make several decisions requiring a high level of financial expertise and participation. Most members do not have the expertise to make such decisions; hence, the onus falls on fund providers to offer default products that make the 'best' decision for their members, In this paper, we demonstrate mathematical tools that can assist in determining optimal decisions for members with various characteristics. We provide a specific example, in a simplified setting, showing that allowing for realistic elements like social security and tax has a material impact on optimal decisions. Finally, we discuss how such models might be used in the development of default options that better cater to the needs of members.