By Andrew Proebstl, Chief Executive, legalsuperA new report by the Australian Securities and Investments Commission (ASIC) has highlighted the need for more work to be done to increase member engagement with their super funds.
The ASIC “Member Experience of Superannuation” Report (Report 529) released on 30 June is well worth a read as it presents both challenges and opportunities for employers.
You might be thinking: why is a report on the need to increase member engagement with super of interest to employers?
Financial stress is bad for businessFor most Australians, their quality of lifestyle in retirement is largely dependent on how much super they have accumulated (along with owning one’s own home).
People with lower super balances are more likely to fear retirement and, over the course of their working life, be subject to increasing levels of financial stress.
Financial stress among staff in the workplace can lead to feelings of hopelessness, anxiety, depression, risk-taking, illness, absenteeism, reduced productivity, poor decision-making and more.
This is concerning not only in terms of the impact such behavior may have on individuals and their families but also in terms of the potentially adverse impact on the business for which they work.
A report released last year by The Centre for Social Impact revealed that 2 million Australians are experiencing a high level of financial stress or vulnerability.
Similarly, the Australian Psychological Society’s series of “Stress and Wellbeing” surveys concluded that financial stress is felt strongly by a “concerning” number of Australians.
In addition, a lack of financial preparedness for retirement can also lead to staff who would otherwise have retired, and who want to retire, feeling they have no other choice but to stay on at work. Employees who find themselves in this situation are often less enthusiastic and productive.
The ASIC “Member Experience of Superannuation” Report maps three stages of the superannuation lifecycle – joining a fund, ongoing membership of a fund and changing or leaving a fund. The balance of this article considers how employees can be encouraged to better engage with their super in each of these three stages.
Joining a fundAn important threshold question for employers here is: why they have chosen their existing default super fund and whether or not it remains the most appropriate fund for their employees?
Usually employers choose a default super fund based on factors such as past performance and competitive fees and charges. How long has it been since you benchmarked the performance of your default fund, its fees and charges and its level of service and support provided to your employees with that of other super funds?
Most employees do not choose their own super fund which means their super will be paid to the default super fund chosen by their employer.
Also, unless members choose otherwise, their super will be invested in the fund’s default investment option, plus they will be provided an automatic level of insurance which may or may not suit their particular financial goals.
Employees can also make decisions about whether or not to make voluntary contributions to their super. Sadly, many people realise too late in their working life that if they had made additional contributions to their super (which are subject to caps) they would have been more likely to have accumulated sufficient savings to fund the retirement lifestyle they want.In relation to insurance, super fund members have options to take out death, total and permanent disability insurance or income protection insurance, and to do so at different levels of cover.
The appropriate level of insurance for a person will depend on their individual (and family) circumstances. A one-size-fits-all approach is not optimal. Members who do engage with their super and make informed decisions about the appropriate levels of cover will not only benefit from having cover that better meets their needs, they will benefit from the confidence and sense of well-being that flows from knowing they have cover that provides increased peace of mind.
The most important decision members of super funds can – and should – make is how their super is invested.
As the ASIC Moneysmart says: “With super, it's easy to set and forget. But choosing a suitable investment option will have a major impact on how your super performs.”
Members of super funds can typically choose from a number of investment options – for example a Growth, Balanced or Conservative option. The Growth option is likely to aim for higher average returns over the long term whereas a Balanced option aims for reasonable returns, but lower than those of a Growth option, while a Conservative option would typically aim for lower risk and a lower return over the long term.
Typically, younger people, who will not access their super for some years will benefit from a Growth option. As members approach retirement, they may switch to a more conservative option. Of course, the appropriate investment option depends on individual circumstances and the role super plays in an individual’s overall financial planning.
Employers can encourage their staff to take an active interest in and ownership over these important financial decisions by:
- Asking their super fund to run information sessions for staff and management,
- Ensuring their super fund has useful and well-presented information on its website including easy to use calculators, and
- Checking their super fund provides high levels of customer service and support for member inquiries.
ASIC’s report deals at length with the wide variation in the quality of super fund websites (including the reliability of the information contained therein) and the impact this can have on fund members.
Ongoing membership of a fundOne very good time to encourage staff to engage strongly with super arises each year when funds distribute their annual member statement, usually between August and December.
The statement will contain important information including the individual’s super balance; levels of insurance cover; investment option/s selected; and fees paid. Funds will often also indicate how the fund performed against various independent industry rating agencies medians.
At this time of the year, employers seeking to increase their staff’s engagement with super may consider the following types of strategies:
- posting short notices in the staff newsletter or on the company intranet encouraging people to make the time to read their annual statement and consider contacting their super fund for an annual ‘super checkup’. Your super funds can provide you with suggested wording, and
- inviting your super fund to conduct a workplace seminar for staff.
Another time of the year that lends itself to encouraging staff to engage not only with their super fund, but their own overall financial planning is when annual staff appraisals are held.
While not all businesses tie staff appraisals to salary reviews, many do and staff who receive a pay increase may be more receptive than at other times of the year to pay additional contributions to super with their increased salary.
Changing or leaving a fund
The factors to be considered, continually reviewed and acted upon, when joining a fund and participating in a fund also apply when changing or leaving a fund.
Is the fund performing well compared to the industry median? Are its fees and charges value for money? Does it provide high quality member service and support?
As well as these areas, the ‘Changing or leaving a fund’ section of the ASIC report covers topics including lost super and the consolidation of super accounts.
According to the Australian Tax Office, as at June 30, 2016, there was more than $14 billion in unclaimed and lost super waiting to be claimed.
The 2016 Westpac Lost Super Report found that almost half (48 per cent) of Australians do not know if they have lost super and more than four in five (83 per cent) are unlikely to do anything to find their lost super.
The Westpac report found that respondents put looking for lost super in the same bucket as smoking or exercise – they know they should do something but they just do not get around to it.
In relation to multiple super accounts, it is still often the case that when people change jobs they join a new super fund and do not close their previous accounts and consolidate them into one account. This proliferation of multiple accounts is one of the key reasons why so much super ends up becoming lost.
As a result of having multiple funds, people typically end up unnecessarily paying fees and charges on multiple accounts. They may also miss out on the full benefit of compounding interest working on a single larger amount of money in one account.
ASIC has provided a very timely reminder to individuals, employers and super funds that more needs to be done to encourage and foster member engagement.
From an employer’s point of view, the business case for doing so is strong.
The business case for super funds being more proactive in this space is equally strong.
Now may be the time to contact your super fund and ask about the types and levels of support they are willing and able to provide to improve overall member engagement with super as part of supporting your staff to better secure their financial future.
As the research shows, employees free of financial (dis) stress are far more likely to be more productive and happy in the workplace.
About our Guest Blogger
Andrew Proebstl is chief executive of legalsuper, Australia's super fund for the legal community. legalsuper is an ALPMA Australian Corporate Partner.
Andrew is a member of the Policy Committee and former Director of the Australian Institute of Superannuation Trustees. He is also a former member of the Victorian Executive of the Associations of Superannuation Funds of Australia. He regularly presents at superannuation industry conferences and writes regular superannuation columns for law societies across Australia. He can be contacted on ph 03 9602 0101 or via firstname.lastname@example.org