Informed Superannuation Choice: Constraints and Policy Resolutions

Brown, Kerry; Gallery, Gerry; Gallery, Natalie

doi:10.1016/s0313-5926(02)50007-2

Cited by 20 publications

(22 citation statements)

References 4 publications

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“…Changes in demography with ageing and ethnically-diverse populations has seen language, educational and cultural barriers arise that may hinder the access of some populations to these improved opportunities, and lead others less knowledgeable to questionable decision-making. Brown et al (2004), for example, concluded that when faced with the complex investment decisions inherent in a superannuation choice system, individual attitudes towards participation are likely to vary considerably (see also ASFA 2006b). Since those who choose to avoid participation will remain effectively disengaged from the process, it is erroneous to assume that all superannuation fund members are able and/or willing to develop their skills to a level sufficient to exercise informed choice.…”

mentioning

confidence: 99%

Knowledge and Perceptions of Superannuation in Australia

Worthington

2008

J Consum Policy

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mentioning

confidence: 99%

Knowledge and Perceptions of Superannuation in Australia

Worthington

2008

J Consum Policy

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“…This outcome suggests that many individuals value choice as an option, but are willing to exercise that choice only where the expected outcomes of the choice result in gains that exceed the costs associated with making the choice (Brown, Gallery & Gallery 2002). Achievement of the objective of maximising retirement benefits is heavily reliant on individuals making informed choices.…”

Section: Risks Associated With Superannuation Choicementioning

confidence: 99%

“…In addition to actuarial and investment risks, 'risk transfer costs' include the costs of becoming informed, such as time taken to acquire, read and interpret relevant material and/or seek professional advice from a financial expert, for the purposes of making the initial choice, and then ongoing monitoring of the ICP option. Risk transfer costs also extend to the cost of not becoming informed (and therefore making an uninformed choice) and the cost of making a wrong choice (Brown, Gallery & Gallery, 2002). Within the context of this study, risk transfer costs are broadly defined as any costs associated with risks that transfer from the employer to employees when employees shift from a defined benefit to an accumulation plan, and any newly arising risks borne by employees when they transfer.…”

Section: Risks Associated With Superannuation Choicementioning

confidence: 99%

“…However, when investment choice is actually offered, on average, fewer than 10 per cent of members actively exercise that choice (Senate Select Committee on Superannuation and Financial Services [SSCSFS] 2000). This outcome suggests that many individuals value choice as an option, but are willing to exercise that choice only where the expected outcomes of the choice result in gains that exceed the costs associated with making the choice (Brown et al 2002). Achievement of the objective of maximising retirement benefits is heavily reliant on individuals making informed choices.…”

Section: Risks Associated With Superannuation Choicementioning

confidence: 99%

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Employees’ Choice of Superannuation Plan: Effects of Risk Transfer Costs

Brown

Gallery

et al. 2004

Journal of Industrial Relations

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Consistent with a worldwide trend away from defined benefits towards accumulation benefits, many Australian employers who traditionally offered their workers defined superannuation benefits are closing their defined benefit plans to new members and/or offering existing members the option of transferring to an accumulation plan. There has also been a push to allow members greater choice in terms of both funds and investments. Against this background, the Superannuation Scheme for Australian Universities (SSAU) made an offer to its members in 1998 to transfer from the defined benefit section to an accumulationstyle plan. Their position was that the choice of fund for employees should be a matter for the employer and the employees at the workplace or their respective representative organizations.At the conclusion of the offer period only one-third of SSAU members had elected to transfer to the Investment Choice Plan (ICP). This study seeks to explain why the majority of SSAU members chose to remain in the defined benefit plan when offered the option of transferring to the accumulation-style ICP. We propose that 'risk transfer costs' explain the low ICP acceptance rate. Research findings show that both those who chose to stay in the DBP and those who elected to transfer to the ICP were prepared to accept tradeoffs in their choice. DBP members were prepared to forego a higher quantum of expected benefits for greater security of benefits expected in the DBP, whereas the ICP members were prepared to forego such security and accepted higher investment risk in return for a higher expected quantum and greater control over their benefits. Differences in financial proficiency and differences 2 across academic disciplines confirm that risk transfer costs were a key reason for the majority of SSAU members rejecting the ICP choice. Important implications arising from this study include the need for greater transparency of the risk transfer costs involved in offers of benefit structure change, such as that offered by the SSAU, and the need to incorporate compensation for such costs into the offer. Cognizance also needs to be taken of the major risk transfer cost of becoming informed about superannuation and the consequences of such costs for the Government's intentions to mandate superannuation fund choice for all Australian workers.

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“…Given the long-term investment horizon of retirement savings, the performance of domestic equities is the central driver for wealth ~reation.~ For analysis of the performance of wholesale superannuation funds, see Drew, Stanford and Veeraraghavan (2002). See Gallery, Gallery (1996), Gallery, Gallery andBrown (2000) and Brown, Gallery and Gallery (2002) and Drew and Stanford (2003a) for discussion on the controversies surrounding member choice legislation. For analysis of issue of performance persistence, or the 'hot hand' phenomenon in retail funds, see Drew, Stanford and Taranenko (2001) and Drew, Stanford and Veeraraghavan (2002).…”

Section: Samplementioning

confidence: 99%