(03) 9020 2905PORTFOLIO POINT: Take note Jeremy Cooper – Australians want to know more about their super. And that education can have multiple benefits.
Everybody knows the gag about being treated like a mushroom, don’t they? You know, where people/things are left in the dark and fed crap.
Well, to me, that’s Jeremy Cooper’s plan for the future of superannuation. The basis of the recommendations in his Super System Review report – it was right there in the first paragraph – was that Australians “should not have to be interested” in their super.
That was his reasoning for the introduction of MySuper, the ultra-low management fee vehicle that he hopes will become the default fund for 80% of Australians. (I don’t have a problem with MySuper – just the way it has been justified. The justification, I feel, will lead to implementation issues)
I had my say on this when his report came out (see my column of July 7, 2010) and nothing is yet changing my mind.
In fact, I’m becoming more convinced that he’s got this fundamentally wrong. A recently published survey from investment management consultants Mercer suggests a government-sponsored education campaign is exactly what’s needed.
That fact that no Australian government has ever run a serious education program about superannuation is ludicrous, given it is intended to be Australians’ main source of retirement incomes and Australians themselves are left in charge of it. Do we let kids loose in cars without lessons?
Anyway, here’s a bit of evidence to suggest that adopting Cooper’s flawed fundamental as the basis for Australia’s superannuation system is wrong. I’m sure it won’t be a surprise to readers of Eureka Report, but Australians don’t want to be kept in the dark and fed crap when it comes to their super.
Australians WANT to be more educated about super. They ASPIRE to have a solid knowledge of their super. And there are multiple benefits for those that do have a greater knowledge of super.
You might have seen the major result of the survey in last week’s metro papers. Mercer’s survey said that sentiment towards superannuation had risen by three points to 40 (on a scale out of 100) in the six months to June 2010. That’s below a pass mark of 50%, but understandable given where investment markets have been in recent quarters.
But what the survey drilled down into was Australians “trust” of their super. Again, the survey’s findings were that about 60% of people trusted their super fund to do what it said it would, was reliable and honest.
The really interesting data came when Mercer further drilled down into “trust” according to the respondents “level of knowledge about superannuation”.
Across the board, for each of the five questions asked, the level of trust (or faith) in super funds increased with knowledge. And we’re not talking small changes here. We’re talking huge differences between people with “low”, “medium” and “high” levels of super knowledge.
For instance, to the statement “I trust my superannuation fund to do what it says it will do”, the average for the 1003 survey respondents was 63%. For those with a low level of knowledge of super, the score was 50%. For those with a medium level of knowledge, the score was 65%. And for those with a high level of knowledge, the score was 89%.
There were four similar questions on trusting funds. That difference between a person’s super education and trust was consistent.
“This suggests that improving member knowledge may have a twofold benefit – greater empowerment for members to make educated decisions about their superannaution and a further opportunity to build trust (and ultimately loyalty) towards funds,” Mercer said.
But here’s the kicker.
“There was a notable proportion who wanted to gain more knowledge about superannuation – 16% rated their current knowledge as strong or sophisticated, while many (60%) aspired to that level,” Mercer’s survey said.
Three-quarters of Australians want to have a “strong” knowledge of superannuation. But only 16% feel as though they have one. And the survey showed that knowledge led to empowerment and trust.
Who is in the best position to give Australians a suitable education? Who could be trusted to do so properly, without the vested interests of industry, corporate or retail funds?
*****
Mercer then goes on to list what trustees of superannuation companies can take away from their study. Included in their recommendations were that superannuation funds should:
- Segment their client base so they can target information campaigns to members.
- Manage member expectations about superannuation balances
- Improve levels of member understanding around the tax effectiveness of superannuation
Mercer also recommended that employers should play a role in the education process by allowing experts to come and speak to their workforce, making it easier to make salary sacrifice contributions and help employees to understand the value that compounding will provide for contributions made earlier in their working lives.
Super funds have had the opportunity/responsibility to do this since superannuation began. And if all funds attack it from their own little world, with their own tiny little marketing budgets, they will not get very far.
If they all got together and pooled resources … well, maybe. But that’s simply not going to happen. There are far too many competing interests for anyone to get together to agree on what should be said in an advertising campaign.
It needs government to step in. Not to change the laws, as they do every year (which only ever confuses matters, but that’s an ongoing battle). It needs governments to come in and educate.
I don’t even think it would take that much money to have a truly massive impact. Governments spend enormous sums on educating the public on issues that I would argue have far less off a positive impact.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.