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(Apr-05): Commence countdown - Mercer’s five phases of the impact of choice
The countdown to choice of fund is well and truly underway. As we move into phase three of what Mercer has identified as a five market-phase process, employers and members now have just two months to learn about choice and the options available.
Phase four — decision-making will occur during May and June 2005 then phase five will follow in July and August when final decisions on choice are expected to be exucuted.
It’s a very short time frame to come to grips with the most significant market reform since the introduction of compulsory super in 1992.
Phase one: Blissfully Unaware
Although choice of fund has been debated for more than seven years, and the Federal Government legislated to introduce choice before last year’s October election, most employers and members were blissfully unaware until January.
Employers were busy running their businesses, with many issues competing for their time, resources and money in the lead up to Christmas. Members had similar demands on their time, and most did not focus on a change that was six months or more away.
Phase two: Dawning Awareness
In January and February 2005 came phase two, a dawning awareness of choice. Advisers such as Mercer continued to educate employers and warn them they only had four months to undertake a very significant change project.
Journalists began to take an interest, writing both employer and member-focused stories on choice of fund. Advertising and media outlets began to take note too, with an eye on the expected ad bonanza courtesy of super funds and the Federal Government. At a minimum there’s $49 million now available in new campaign funding from the industry funds and Federal Government alone.
Phase three: Learning About Choice
We have now entered phase three — learning in detail about choice and the options. On March 14, the all-important regulations and standard choice form, containing final details about choice of fund that were missing from the Act, were released.
For employers, this means focusing on issues such as payroll changes, determining a default fund and working out what aspects to outsource.
For members, learning about choice means thinking seriously about whether or not to switch funds after July 1 2005 — and if they’re even eligible
Fund benefits: the employer/ member mismatch (see table)
The Mercer Benefits Outside the Square survey conducted in January 2005, surveyed 558 members from144 organisations across 19 industries.
The survey showed a stark mismatch in what fund benefits employers think members want versus the fund benefits members actually want. With choice of fund, these differences will take on a new meaning.
Participants were asked their level of interest in super benefits they believed they did not currently have access to. Of particularly high interest to members was being able to nominate which fund their super contribution was paid into. Employers, however, only ranked this feature fifth out of seven in perceived importance to members.
Employers also underestimated the importance of the availability of a pension though a super fund — with two in three members indicating a desire for it. However, employers ranked this feature second lowest in its importance to members.
It’s easy to see why many Australians have taken only a passing interest in their superannuation. From July 1 a truly consumer directed marketplace will begin to emerge, where fund members increasingly take charge.
Based on our findings, some employers will need to rethink the value of their fund’s features. This could mean creating awareness about existing benefits or introducing new services, such as access to personal financial advice (which was the most desired benefit outside mainstream super).
Either way, it appears that many members, especially those intending to switch, seek more power in the super fund-member relationship. They will be paying close attention to core aspects of a super fund, investment performance, fees and services. And for everyone — providers, members and employers — it’s a brave new world indeed.
Next month: Phase Four — Decision-Making
David Anderson is National Practice leader of Mercer Wealth Solutions
AUTHOR
Mike Taylor
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