Head shrinking and super

cent/federal-government/

28 July 2006
| By Glenn Freeman |

A new opt-in superannuation contribution program combining psychology and economics research to overcome human behaviours such as apathy and procrastination has been announced by Plum.

The announcement coincides with Federal Government discussions about a possible opt-out arrangement for personal superannuation contributions. If introduced, this would boost the default contribution for new employees from 9 per cent to 12 per cent, unless the individual chooses otherwise.

Designed using behavioural finance theory from the US, Plum aims to help participating employers encourage employees to boost personal superannuation guarantee contributions to a maximum of 15 per cent of salary. In a bid to keep the process simple, only two decisions need to be made once an increased contribution rate is selected: whether it will come from pre or post-tax income, and the percentage increase in increments of 1, 2 or 3 per cent.

“It’s simple — members commit to increase their contributions, by small steps for most people, automatically each year until they reach their target contribution level, which for many people would be 12 per cent or more,” said Plum managing director Mike Fitzsimons.

The approach is based on Saving More for Tomorrow (SMarT), a program pioneered in the US by leading behavioural finance researcher Professor Shlomo Benartzi.

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