Planners crucial to super choice success

Super choice was introduced in July 2005, to allow Australians to make their own decisions about how they want to invest for their retirement.

Few argued against the legislation, as this was an opportunity for individuals to take responsibility for their impending retirement, whether it is in 10 years or 40 years.

As part of the announcement, the Government launched an extensive education campaign through the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC) and the Consumer and Financial Literacy Foundation to help employees understand their rights and make informed decisions.

The campaign also ensured that employers were fully equipped to fulfil their obligations.

Embracing choice

This time last year, the industry was rife with speculation that major change was ahead.

Smaller super funds were concerned they could potentially be forced out of the market by larger funds with more marketing dollars to attract those looking to switch funds.

Industry super funds began an aggressive television campaign that is still on air today, differentiating the returns from a retail fund compared to an industry fund.

A year on and it seems every month more conflicting research is published by financial services organisations trying to prove the super choice legislation has or hasn’t been successful.

The consensus from all the research is that super choice has not been widely adopted. It seems new legislation and choice is as much of an education process as an empowering one.

Lost super

The younger the employee, the more invisible superannuation is perceived to be.

Salaries are considered and negotiated by base rates, and even on payday super isn’t considered because contributions are not documented as a salary is on a month-by-month basis.

For a 22-year-old starting their second job, and some 40 years away from retirement, there is often little consideration to continue their fund from the part-time job they had while studying.

It is therefore not surprising that more than three million Australians have unintentionally and, often unknowingly, misplaced a super fund. Especially when this is coupled with the Government’s definition of lost super — “a fund that has not been accessed for two years”.

Changing jobs is one of the root causes of lost super, which is made more pertinent today when there is no longer a job for life.

Super apathy

A survey by the Institute of Chartered Accountants (ICA) found that 27 per cent of Australians hold more than two super funds.

The research published in April this year surveyed 1,200 Australians from across the country.

The group with the highest number of multiple funds were those in the 35 to 49 years age bracket, and the top two reasons cited for why they have not consolidated their funds was laziness and multiple jobs.

The survey found laziness was the main explanation given to explain why respondents hold multiple funds across all age groups.

From the research, only 2 per cent claimed not to have considered consolidating their super funds, suggesting there is an overwhelming awareness to consolidate funds, but apathy is getting in the way.

The ICA research does not prove or disprove super choice engagement, but the survey clearly identifies apathy as the universal barrier that is stopping people considering their superannuation and the wellbeing of their future retirement capital.

Apathy and perceived complexity, combined with financial illiteracy that can ‘scare’ people from attempting to educate themselves, combined with the perceived notion that superannuation will ‘look after itself,’ is a self fulfilling prophecy to do nothing.

New initiatives

The Labor Party has suggested a scheme whereby negative consent action is required.

This would mean the Government would consolidate everyone’s funds, unless it had been specified that funds should be maintained in multiple funds.

In response, last month’s Budget saw the Federal Government take the first steps to proactively help individuals consolidate their super.

The Government intends to write to constituents advising them of any lost super funds and request they complete a form for the funds to be consolidated.

More education

The Government initiative should help to reduce the number of funds held by those people contacted.

But for super choice to be a success across the nation, the Government, the ATO and Australian financial industry bodies such as ASIC and the Institute of Chartered Accountants (ICA) need to help consumers understand the benefits of managing their superannuation, including how an adviser can manage funds on their behalf.

From July 1, 2006, any education program will have more relevance to more Australians under a federal workplace agreement called a notional agreement preserving state awards. Employees working for corporates who previously could not choose a fund because they were employed under a state award will also be able to select their own fund.

The industry is only going to get more complex with the workplace relations regime demanding companies no longer have a default fund, so employees are forced to make a choice.

The industry is already beginning to see consolidation of company funds and, hence, industry funds are becoming popular.

The simplest and most relevant message for super choice to be a success is to advise Australians to seek professional advice from a licensed specialist such as a financial planner or licensed accountant.

An adviser can help find any lost funds, assist in the consolidation of funds if required, and offer expert advice tailored to the needs of the individual.

This message would reach every Australian and encourage what the super choice legislation intended, for everyone to take responsibility for their retirement.

Hugh Elvy is manager, financial planning and superannuation, at the Institute of Chartered Accountants in Australia.