Member choice market hots up

A new study has confirmed member investment choice has been sweeping though the Australian superannuation industry.

A new study has confirmed member investment choice has been sweeping though the Australian superannuation industry.

Towers Perrin's 1998 Australian Superannuation Survey found that 60 per cent of Australian companies either already offer member invest-ment choice or are considering introducing it.

Indeed, of the 29 per cent of companies not considering member in-vestment choice, nearly half say they might introduce it if there is enough pressure from members.

While member investment choice is offered by only 18 per cent of the companies in the survey, a further 43 per cent say they are consider-ing offering it in future, and only 23 per cent of employers say they have no plans to offer it at all.

The survey found that of those already offering member investment choice, 67 per cent use a range of preset portfolio mixes - such as capital stable, balanced and growth.

Only 14 per cent use specific investments vehicles like capital sta-ble or ABC Growth.

In addition, about half of those planning to introduce member invest-ment choice say they will use a range of preset portfolio mixes.

The survey found that a choice of three options is clearly the most popular route for companies already offering member investment choice and for those planning to do so in the future.

It also found that "medium risk" is the most popular default option provided for members who do not elect a choice.

Of concern to Towers Perrin, however, is the finding that a large number of corporate funds are placing the success of their member in-vestment choice programs in jeopardy.

Towers Perrin head of employee benefits services, Steve Schubert, says: "What we didn't expect to see was that a large number of corpo-rate funds are neglecting the factor that may determine the success of their member investment choice program: communication and finan-cial education."

The study found that although 70 per cent of companies communicate with members because they believe they need to, three quarters of them do not follow up communication material to find out how it was received, perceived or understood by members.

According to Towers Perrin, only 26 per cent of companies have ever obtained feedback on communication material.

"Unless the corporate funds measure the effectiveness of their commu-nication strategies, they may be wasting valuable resources," Schu-bert says.

Elsewhere, the survey found that the 15 per cent super surcharge for high income earners now affects 89 per cent of executives, 21 per cent of staff and 8 per cent of wages employees.

It also found that almost three-quarters of funds pass the cost of the surcharge on to employees, most often by debiting member ac-counts.

In addition, only four per cent of companies plan to introduce the choice of a separate spouse account. This account allows members to benefit from the 18 per cent rebate for super contributions made on behalf of spouses earning less than $10,800 per year.

While 33 per cent of respondents say they may introduce this account, 47 per cent say they will not and 16 per cent are undecided.

Meanwhile, Towers Perrin notes there has been a marked increase in the number of accumulation benefit plans in its 1998 survey, compared to its 1995 survey.

These are up 11 per cent while purely defined benefit plans are down nine per cent and combination plans fell two per cent.

Also, there has been a shift in benefit types between the two surveys. More compa-nies are now providing lump sum only benefits (82 per cent) compared to in 1995 (77 per cent), with less providing pensions and alternative forms of benefit.