Prepared by
Colmar Brunton Social Research
Suite 7/8 45 Novar St, Yarralumla
Canberra, ACT 2601
Tel: 02 6249 8566 Fax. 02 6249 8588
Contacts: Corey Fisher, James Wunsch
Joanne Trevelyan
Understanding Superannuation
Preliminary Report:
Qualitative Investigation with Employers, Consumers & Industry
prepared for
Australian Taxation Office
25 March 2010
4033249 Superannuation
Table of Contents
1 Executive Summary 6
1.1 General Perspectives on Superannuation 6
1.2 Key Attitudes to Superannuation 6
1.3 Key Concerns about Superannuation 7
1.4 Lack of Engagement 8
1.5 Impact of the Economic Downturn 8
1.6 Choice of Funds 9
1.7 Consolidation of Multiple Funds 10
1.8 Information about Superannuation Funds 10
1.9 Improvements to Information 10
1.10 Information about Regulations 11
1.11 Fees, Charges and Commissions 11
1.12 Areas in Most Need of Review 12
2 Background, Objectives & Methodology 13
2.1 Background 13
2.2 Report Focus 14
2.2.1 Research Objectives 14
2.3 Research Methodology 15
2.3.1 Stage 1: Qualitative Investigation with Consumers and Employers 15
2.3.2 Stage 2: Qualitative Investigation with Other Superannuation Stakeholders 16
3 STAGE ONE – EMPLOYERS 18
3.1 Attitudes towards Superannuation 18
3.1.1 General Perspectives on Superannuation 18
3.1.2 Employees’ Knowledge of Superannuation 18
3.1.3 Importance of Superannuation 19
3.1.4 Best Aspects of Superannuation 19
3.1.5 Impact of the Economic Downturn 20
3.1.6 Concerns about Superannuation 20
3.1.7 Superannuation compared to other Investment Options 21
3.1.8 Superannuation as a Long Term Investment 21
3.2 Knowledge about Employee Superannuation 21
3.2.1 General Knowledge of Superannuation Requirements 21
3.2.2 Superannuation Administration 22
3.2.3 Adequacy 23
3.2.4 Voluntary Contributions 23
3.2.5 Tax Implications 24
3.2.6 Different Types of Superannuation Funds 24
3.2.7 Choice of Funds 24
3.3 Superannuation Behaviours 25
3.3.1 Default and Choice of Fund 25
3.3.2 Superannuation Information Provision 26
3.3.3 Information Provision to Superannuation Funds 26
3.3.4 Choosing a Default Fund 27
3.3.5 Actively Seeking Information 28
3.3.6 Voluntary contributions 29
3.3.7 Information sources 29
3.3.8 Investment Strategies 30
3.4 Knowledge of Specific Superannuation Issues 31
3.4.1 Knowledge of Accessing Superannuation Prior to Retirement 31
3.4.2 Embedded Life Insurance 31
3.4.3 Knowledge of fees 32
3.4.4 Superannuation Fund Advertising 32
4 STAGE TWO - CONSUMERS 33
4.1 General Attitudes to Superannuation 33
4.1.1 Key Perspectives of Superannuation 33
4.1.2 Concerns about Superannuation 34
4.1.3 Superannuation as an Investment 35
4.2 General Knowledge about Superannuation 38
4.2.1 Understanding of Superannuation 38
4.2.2 Awareness of Changes to Superannuation 39
4.2.3 Awareness of the “Superannuation Guarantee” 40
4.2.4 Knowledge of Voluntary Contributions 41
4.2.5 Knowledge of tax concessions 42
4.2.6 Knowledge of Self-Managed Superannuation Funds 43
4.2.7 Knowledge of different types of superannuation funds 44
4.3 Superannuation Behaviours 45
4.3.1 Multiple Funds 45
4.3.2 Lost Superannuation 46
4.3.3 Making Voluntary Contributions 47
4.3.4 Information about Superannuation Fund Performance 48
4.3.5 Seeking Financial Advice 49
4.3.6 Choice of Fund 51
4.4 Information Sources and Preferences 52
4.5 Knowledge of Specific Superannuation Issues 54
4.5.1 Early Access to Superannuation 54
4.5.2 Embedded Life Insurance 55
4.5.3 Self-Managed Fund Investment Options 56
4.5.4 Superannuation Fees and Charges 56
4.5.5 Retirement Savings Accounts 57
4.5.6 Superannuation Fund Advertising 58
5 Superannuation Fund Associations 60
5.1 Attitudes towards Superannuation 60
5.1.1 Health of the Superannuation System 60
5.1.2 Perspectives on the Compulsory System 61
5.1.3 Efficiency 62
5.1.4 Regulatory Regime 62
5.1.5 Role of Intermediaries 63
5.1.6 Self-Managed Superannuation Funds 63
5.2 Information and Advice 64
5.2.1 Availability and Quality of Information 64
5.2.2 Fees and Charges 65
5.3 Adequacy of Superannuation 65
5.3.1 Current Superannuation Guarantee Level 65
5.3.2 Age Pension 66
5.3.3 Income Stream vs. Lump Sum 66
5.3.4 Tax Effectiveness 67
6 Bookkeepers 68
6.1 General Attitudes to Superannuation 68
6.1.1 Health of Superannuation in Australia 68
6.1.2 Compulsory Nature of the System 69
6.1.3 Impact of the Economic Downturn 69
6.1.4 Efficiencies of the System 69
6.1.5 Regulatory Reforms 70
6.2 Information and Advice 70
6.2.1 Information Sources 70
6.2.2 Time Consuming Aspects of Superannuation 71
6.2.3 Provision of Information 71
6.2.4 Tax Effectiveness 71
6.3 Awareness of Specific Superannuation Issues 72
6.3.1 Retirement Age 72
6.3.2 Transition to Retirement 72
7 Contractors and Sole Traders 73
7.1 Attitudes towards Superannuation 73
7.1.1 Perspectives on Superannuation 73
7.1.2 Importance of Superannuation 74
7.1.3 Benefits and Concerns in Relation to Superannuation 75
7.1.4 Impact of the Economic Downturn 75
7.1.5 Superannuation as an Investment 76
7.1.6 Adequacy of Superannuation 77
7.2 Superannuation Behaviours 77
7.2.1 Profile of Superannuation Account Holding 77
7.2.2 Options within Superannuation 78
7.2.3 Life Insurance 79
7.2.4 Multiple Accounts 79
7.2.5 Lost Superannuation 80
7.2.6 Reasons for Not Making Voluntary Contributions 80
7.2.7 Awareness of Superannuation Incentives 80
7.2.8 Self-Managed Superannuation Funds 81
7.3 Information and Advice 81
7.3.1 Information Sources 81
7.3.2 Government Regulation of Superannuation 83
7.3.3 Compulsory Contribution Concept 83
7.4 Knowledge of Specific Superannuation Issues 83
7.4.1 Early Release of Benefits 83
7.4.2 Embedded Life Insurance 84
7.4.3 Knowledge of SMSF Restrictions 84
7.4.4 Fees and Commissions 84
7.4.5 Retirement Savings Accounts 85
7.4.6 Superannuation Fund Advertising 85
8 Self-Managed Superannuation Fund Trustees 86
8.1 Attitudes towards Superannuation 86
8.1.1 Perspectives of Superannuation 86
8.1.2 Compulsory Contributions 86
8.1.3 Economic Downturn 87
8.1.4 Concerns about Superannuation 87
8.1.5 Changes to Concessional Caps 88
8.1.6 Role of Trustee 88
8.2 Trustee Attitudes and Behaviours 89
8.2.1 Information Sources for Trustee Role 89
8.2.2 Advantages of SMSFs 89
8.2.3 Disadvantages of SMSFs 89
8.2.4 Improvements to System 90
8.2.5 Reasons for Establishing SMSF 90
8.2.6 Lost Superannuation 90
8.2.7 Time Commitment to SMSF 90
8.2.8 Degree of Involvement in SMSF 91
8.2.9 Importance of Investment Strategy 91
8.2.10 Source of Information on Investment Options 91
8.2.11 Life Insurance as Part of SMSF 92
8.3 Information and Advice 92
8.3.1 Sources of Information about Managing Fund 92
8.3.2 Changing Regulations 92
8.3.3 Use of Intermediaries 93
8.3.4 Fund Performance 93
8.3.5 Gearing through SMSF 93
8.3.6 Impact of Global Economic Downturn on Investment Strategy 94
8.3.7 Views on Current SMSF Regulations 94
8.3.8 Encouraging Others to Establish SMSFs 95
8.3.9 Awareness of Life-Cycle Investments 95
8.4 Adequacy of Superannuation 95
8.4.1 Requirement Amount of Superannuation for Retirement 95
8.4.2 Age Pension 96
8.4.3 Lump Sum vs. Income Stream 96
8.4.4 Superannuation as a Tax Effective Investment 96
9 Accountants and Tax Agents 98
9.1 Attitudes towards Superannuation 98
9.1.1 Perceptions of the System 98
9.1.2 Perceptions of Compulsory Superannuation 98
9.1.3 Impact of Economic Downturn 99
9.2 Perspective of Accountants/Tax Agents 99
9.2.1 Overall Functioning of the Superannuation System 99
9.2.2 Awareness of Reforms 100
9.2.3 Clients’ Knowledge of Superannuation 100
9.2.4 Keeping up to Date 100
9.2.5 Behaviours of SMSF Clients 100
9.3 Awareness of Specific Superannuation Issues 101
9.3.1 Superannuation as a Tax-Effective Investment 101
9.3.2 Transition to Retirement Strategies 102
10 Financial Planners 103
10.1 Attitudes to Superannuation 103
10.1.1 Current Australian Superannuation System 103
10.1.2 Compulsory Nature of Superannuation 104
10.1.3 Economic Downturn Impact 104
10.2 The Financial Planner Perspective 104
10.2.1 Reforms to the System 104
10.2.2 Time Consuming Aspects of Role 104
10.2.3 Knowledge of Clients 105
10.2.4 Keeping up to Date 105
10.2.5 Self-Managed Superannuation Funds 105
10.3 Effectiveness of Superannuation 106
10.3.1 Superannuation as a Tax Effective Investment 106
11 Superannuation Fund Representatives 107
11.1.1 Perceived health of Australia’s superannuation system 107
11.1.2 Perceived inefficiencies in the system 108
11.1.3 GFC impacts 110
11.1.4 Regulatory regime 110
11.1.5 Views on role of superannuation guarantee and voluntary contributions 111
11.1.6 Provision of financial advice 111
11.1.7 Growth of self managed funds seen as a key concern 112
12 Appendices 113
12.1 Appendix 1: Focus Group Discussion Guide: Consumers 113
12.2 Appendix 2: Focus Group Discussion Guide: Employers 116
12.3 Appendix 3: Depth Interview Discussion Guide: Self-Managed Superannuation Funds 120
12.4 Appendix 4: Depth Interview Discussion Guide: Tax Agents/Accountants, Financial Planners, Bookkeepers 124
12.5 Appendix 5: Depth Interview Discussion Guide: Industry Stakeholders 128
12.6 Appendix 6: Depth Interview Discussion Guide: Sole Traders And Contractors 131
1 Executive Summary
1.1 General Perspectives on Superannuation
All agree that superannuation is an important concept and is critical (given the current aging population) to take the strain off of government for providing for people in their retirement. Compulsory superannuation is seen as a forced savings plan, especially beneficial to those who would be less likely to plan and save for their retirement, such as those on low incomes and young people. Fundamentally, while engagement levels differ considerably by age group, there was a clear sense that the system is working well in most respects.
1.2 Key Attitudes to Superannuation
Young people are highly disengaged. They are aware that superannuation is there and what it is for. While they support the concept of superannuation in an abstract theoretical way, retirement (and how they will fund lifestyle at this point) is generally far too distant to concern them. The superannuation system is also perceived by many as too complex for them to invest time and effort in understanding.
People aged 30-44 have a high level of anxiety about superannuation. They see their children being disengaged with superannuation and also see their parents deferring retirement or reverting to pensions due to superannuation losses. There is a sense of guilt about superannuation among this group; they know they should understand superannuation and be more active in managing it, but they make myriad excuses for why they will “do it later”. Mostly the reasons for delaying engagement with superannuation revolve around having other priorities, considering other investments (such as property) to provide a better return, or superannuation being something that is done for them that does not require their time and attention.
Older people are more knowledgeable about superannuation and also have significant concerns about it. A significant concern for this group is that the age pension will not exist when they retire and they will have to completely rely on their superannuation. This generates a concern that their superannuation funds will be insufficient for their retirement. Even among those who believe that the pension will be retained; there is fear of being reliant on the pension. The key concern here is that reliance on age pension will impose dramatic changes to lifestyle and spending habits. Beyond this, there is a genuine desire among many to be self-reliant, with some expressing significant discomfort at the concept of relying on the Government to support them in their retirement.
Among employers there is a degree of resentment about the superannuation guarantee. From their perspective, contributions to staff superannuation are not being reciprocated by employees. Superannuation payments are seen as an additional burden and a disincentive to employing staff. They fear that the 9% will increase and they will be unable to afford the increase. There is a general sense that the superannuation guarantee is paid in addition to wages rather than being a part of the wage or salary amount.
Finance professionals such as accountants, tax agents, financial planners and superannuation fund representatives see many benefits to superannuation, and to the compulsory system. Generally, there is need for some reforms but not complete revision. This group believes there is a great need for public education and understanding of superannuation.
1.3 Key Concerns about Superannuation
There is universal concern that 9% of salary is unlikely to be sufficient to allow people adequate funds for retirement. There is recognition that people are living longer and are incurring higher medical costs. The inadequacy of the 9% is compounded by the compulsory superannuation system having yet to run a full cycle; there are few people who have been contributing at least 9% over a full 40 year working life. However, there is general consensus and concern that current contributions to savings will be insufficient for an average retirement.
Among those with a greater degree of knowledge about superannuation, such as accountants and tax agents, financial planners, association representatives and consumers nearing retirement, this issue of inadequacy is compounded by the recent implementation of concessional caps. This change to the system is seen to be self-defeating and to have sent the wrong message to people who require encouragement to maximise their superannuation contributions when they have sufficient disposable income to do so. A lot of people actively strategise to maximise their superannuation contributions towards the end of their working life and these legislative changes have invalidated this strategy. It has resulted in some people diversifying investment away from superannuation into areas where caps do not apply and losing the tax advantages of contributing directly into superannuation.
There is a great deal of concern about the degree and incidence of changes to superannuation. The perceived frequency of reform generates distrust and unease in planning superannuation strategies over a life-cycle. Consumers are confused and disenchanted; the superannuation system seems complex enough without having to constantly monitor and understand changes to regulations. Perceived regulatory risk has many viewing superannuation not as their primary retirement savings vehicle, Funds are being diverted to other investment classes (such as property or direct share holdings) where people feel a greater degree of control over their money.
There are deep-seated fears that the age pension will be abolished and that there will be no safety net for those who have inadequate superannuation at the point of retirement. These concerns are compounded by changes such as the implementation of concessional caps which impact on longer term superannuation funding strategies. Across the consumer group there is worry and guilt about superannuation, and a strong sense of disempowerment. The ability to know how much will be required in superannuation to fund an adequate lifestyle seems very difficult to calculate for the majority of consumers, with factors such as increasing life expectancy, market performance uncertainty and the cost of living all contributing to the complexity of deciding how much needs to be saved ‘today’.
1.4 Lack of Engagement
Employers feel resentment that they are paying for their employee’s retirement fund, which is not seen to be reciprocated with voluntary payments from employees. Employers feel that the compulsory payment by the employer increases the level of disengagement among employees as there is no tangible contribution to superannuation.
Accountants, tax agents and financial planners are concerned that there is a general lack of understanding about how superannuation works. The degree of shock about how little clients understood the nature of superannuation investments and how the portfolios can be affected by general and specific economic conditions. Many people misunderstood this and had assumed that superannuation was somehow guaranteed and isolated from market forces.
Very few consumers have a clear picture of how much superannuation will be sufficient for an average retirement. Many do not consider life-span when calculating required superannuation. They do not look at it in terms of how much do they need per year in retirement, nor in terms of how much they need to be contributing to reach this starting point at retirement, or for how many years this saving pool will need to support them. Some are anticipating that $100,000 will be sufficient, while others are looking at $1million required to live a “comfortable” lifestyle. This is compounded by the many unknown factors such as changing dollar values, the impact of market performance and the costs of medical support and retirement accommodation.