CHAPTER 5
INFORMED CHOICE: EDUCATION
Introduction
5.1 The Committee found widespread acceptance of the view that `informed
choice' is necessary if the Government's choice of fund proposal is to
be successful. There are two requirements for informed choice:
- education of consumers and employers; and
- adequate disclosure of information about funds.
5.2 This chapter covers evidence received by the committee concerning
the importance of adequate education. Chapter 6 discusses disclosure rules.
It is important to note that many witnesses commented about these issues
in the context of discussing the commencement date of choice of fund.
5.3 Many witnesses were concerned about whether there was sufficient
time for implementing appropriate education and communication programs
before 1 July 1998. Similarly, employers and funds have considerable work
yet to be done before they are ready to implement the Government's policy,
for example, in developing key features statements.
5.4 The Committee discusses the appropriateness of the implementation
date in Chapter 7 of the report.
Importance of education
5.5 A large proportion of the witnesses and submissions to this inquiry
emphasised that success of the choice of fund policy requires adequate
education of employers and employees about their obligations and opportunities
under the legislation.
5.6 To this end, many argued for a comprehensive communication and education
campaign to ensure employers understand their options and obligations,
and employees both understand their rights, and have the ability to make
a choice that is appropriate for their needs and circumstances.
5.7 The Committee encountered substantial support for adequate education
from across the spectrum of interests that gave evidence to the inquiry.
In highlighting the comments of several groups below, the Committee stresses
that these comments are included to indicate some of the range of views
represented and are by no means exhaustive.
5.8 Mr David Knight, Compensation and Benefits Manager, Coles Myer, a
major employer, supported the choice of fund concept but warned that adequate
education of employees is central:
Clearly, the success of freedom of choice depends on high quality communication
material. [1]
5.9 The Australian Bankers' Association (ABA), a strong supporter of
the Government's choice proposal, was one of the many who also saw education
as critical to the success of the policy:
The competitive benefits of choice are directly related to the ability
of employees and employers to use and understand the regime. [2]
5.10 The ABA saw a significant role for Government in the education process,
which they considered should incorporate a number of elements, including
TV advertising:
It is our view that the communication and education task before us
involves reaching the hearts and minds of every employee and employer,
and bringing about a culture of active interest. That is why we have
recommended that the government take a high profile, active role, preferably
via TV, in communicating the choice regime. A major public education
campaign is also required.
5.11 The ABA explained why it took the view that a strong education campaign
is needed:
...people see the system as complex, confusing and constantly changing.
Average balances are still low. With compulsion, people do not feel
in control. There is still a negative attitude to super as an investment
in some quarters. People may find the information on super too difficult
to understand. There is disinterest by some employers. There are low
levels of literacy. It is important that we understand the drivers of
these views. This is critical to making the education and communication
effective. [3]
5.12 Mr Brian Thomas, Financial Products Manager, NRMA, suggested an
alternative approach to the advertising campaign proposed by other witnesses.
Mr Thomas cautioned that advertising campaigns may have short lives.
5.13 Mr Thomas proposed that the Government prepare and issue a short
booklet that would:
... form the basis of explaining to people all the generic information
they needed to know about superannuation and how the choice system works
for both employers and employees and, more importantly, what their rights
are under choice. [4]
5.14 Mr Ian Silk, of the Industry Funds Forum (IFF), provided the Committee
with information about literacy and numeracy levels amongst the Australian
population which highlights the need to adequately educate Australians
about choice of fund.
5.15 Mr Silk cited an Australian Bureau of Statistics survey undertaken
in 1996 that ranked adult Australians on their literacy and numeracy levels.
Mr Silk stated that this survey found that almost half of the Australian
population have relatively low levels of literacy and numeracy and are
likely to have considerable difficulty in understanding choice of fund
information, such as key features statements. For this reason, the IFF
strongly emphasised the need for a well planned education program. Mr
Silk concluded:
...if we look at those findings in the context of the issue that is
currently before the committee, it seems that it is an essential part
of the introduction of choice, if it is not to backfire, that considerable
resources and time be employed in informing and educating the community
about the issues that are before them, so that they are in a position
to make an informed choice. [5]
5.16 The Australian Consumers Association (ACA) also saw education as
vital, and considered that there must be a `serious effort to educate
employees and consumers so that they are aware of the potential implications
of choice for their financial well being'. The Association listed a set
of objectives for education, so that people understand, as a minimum:
- why choice may be important for their retirement income;
- whether they have choice, and if so, what sort;
- how and when they can exercise choice;
- what happens if they don't make a choice (and why there may be no
problem if they don't choose);
- that they do not have to move from the fund they are currently in
(i.e. to a new fund);
- the serious implications of shifting out of defined benefit funds;
- where to go for further advice or information; and
- where to go if they have complaints/problems.
5.17 Mr Peter Kell, the ACA's senior policy officer, emphasised that
an education campaign must avoid inducing people to change funds without
good reason. Rather, the message must be that people have the option of
changing funds if their fund is inappropriate to their circumstances:
I think it is important that people do not get the impression from
an education campaign that they must suddenly switch funds. That would
be a damaging message if people ended up believing that was the case.
They should be aware that they have the option but they do not necessarily
have to be switched. [6]
5.18 The ACA emphasised that consumer education about choice should be
independent:
We see the core of any education campaign as being an independent provision
of information and advice, and other things, so that industry has a
role, consumer groups, all stakeholders, unions and employers have a
role. But that core of it has to be independent. [7]
5.19 The ACA drew a clear distinction between education and public relations,
warning that there is a conflict between selling products and educating
users of those products. [8]
Limitations of education
5.20 Despite the best efforts of governments, employers and providers,
it is important to appreciate there are limits to what education programs
about choice of fund might be expected to achieve. Mr Kevin Casey, representing
AMP, sounded a note of caution and saw the problem as long term:
The introduction of choice in superannuation will always cause problems
until you have a genuinely educated public, and that is a generational
type situation. We are not going to be able to magically come up with
a formula to educate the public to make an informed choice in three
or six months. All we can do is start to establish the framework for
this. [9]
5.21 The Committee also received evidence about the extent of low literacy
and numeracy skills in the community. For these people, it is unlikely
that education will be of any real benefit. Mr Ken Lockery, Principal,
Towers Perrin, concurred with this view:
I guess I have already said that I think that, with the best will in
the world, an education campaign will only affect a proportion of the
population and that there will be a whole lot of other people who cannot
benefit from that simply because of their level of English, understanding
or whatever in that process. [10]
5.22 Mrs Sandra Birkensleigh of Coopers & Lybrand provided the Committee
with useful information regarding the results of education programs already
conducted by employers about choice. These programs had achieved mixed
results:
In this month's ASFA magazine, Coca-Cola Amatil is noted as having
been awarded a prize for the best member communication program in terms
of the introduction of member choice. Sixty-four per cent of its members
made an active choice; 94 per cent of its members indicated that they
appreciated being provided with choice. This means that, despite a first-class
education program, 30 per cent of the work force made no choice. The Telstra fund offered investment choice in February 1997 to approximately
72,000 members of its accumulation fund. Less than two per cent showed
any serious interest in departing from the default fund provided by
the trustee. Conversely, the Optus fund offered investment choice approximately
two years ago to its members and, following an intensive education campaign,
75 per cent to 80 per cent of fund members exercised their right to
investment choice. [11]
5.23 Mrs Birkensleigh's evidence demonstrates that well designed and
implemented communication and education campaigns are effective change
agents. Whether the choices made by Optus employees were in fact good
choices is, however, impossible to assess with the available information.
Education for employers
5.24 Employers, particularly small employers, may also need assistance
to understand their obligations under choice of fund. The Committee received
useful evidence from a parent who is an "employer" by virtue
of her involvement in the local kindergarten. Ms Rhonda Holdsworth explained
for the Committee how she came to be an employer:
I was co-opted to a kindergarten committee in 1994 and then told that
we suddenly were the employers of the staff and we were going to manage
their wages, their uniform allowance, Workcover, superannuation - the
lot. None of us had any prior knowledge of those matters and none of
us were from that background. [12]
5.25 Ms Holdsworth told the Committee that parents in this situation
are very worried about their liabilities concerning their `employees',
the teachers. Superannuation presents a major problem for Ms Holdsworth:
`I cannot understand my own superannuation where I work, let alone try
to sort that out for someone in another industry'. [13]
She illustrated the extent of the problem of low employer awareness levels
about obligations towards employees by citing how her Centre had not been
aware of its Workcover obligations and had consequently been fined. She
concluded:
That is the sort of thing you are facing with the superannuation changes
if you offer choices in lots of different funds. It is very difficult
to actually have any knowledge of it unless you are working in the area
all the time. [14]
5.26 Employers may also need education about how to act in the best interests
of their employees. ASFA, for example, advised the Committee that employers
may need help to determine what is an appropriate scheme for their employees
and how to pick an appropriate default fund:
Ms Smith - They need the information education campaign themselves
in terms of how to profile their employees, what types of schemes might
be appropriate for their employees, how to choose themselves, let alone
the public at large. [15]
5.27 The Committee received other evidence from a number of sources indicating
that employers' and employees' knowledge of the choice of fund proposal
is lacking. A number of employers who sent submissions clearly did not
understand the options open to them under the legislation.
5.28 The authors of the submission received from the Anglican Church
of Australia, which sought an exemption for churches from the choice of
fund requirements, did not appear to be aware of the unlimited choice
option, or that they could satisfy their obligations within the industrial
relations framework through a certified or informal agreement. [16]
5.29 Evidence provided by Mrs Louise Matthews of Coopers & Lybrand
supports the Committee's view that awareness is low. Ms Matthews cited
a survey conducted by GIO, the results of which the Australian Financial
Review published on 22 December 1997. That survey found that 78 per cent
of employees and 42 per cent of employers were unaware of the choice of
fund regime to be implemented by 1 July 1998. Ms Matthews concluded: `That
is a staggering number of people who are still unaware that this legislation
is going to be implemented from that date.' [17]
Paying for education
5.30 A substantial education campaign about choice of fund is likely
to be an expensive exercise. ASFA advised the Committee it considered
that such a campaign could be funded from a surplus of regulation fees
collected from the industry. Ms Rosemary Vilgan drew the Committee's attention
to this possibility:
As indicated in our submission, we believe that there is some funding
required from the government but we would also like the committee to
know that the industry substantially overfunds its costs of self-regulation.
Our submission indicates that at the moment there is probably at least
$12 million in surplus that the industry has paid. In effect, there
is money that the industry has paid which would ensure it could self-fund
the education campaign. The combination of that and government funding
would, in fact, make for a sizeable and long-term education campaign.
The intent of the levy was to cover costs but it is far in excess of
costs at the moment. [18]
5.31 Representatives of William M. Mercer Pty Ltd made similar comments
to those of Ms Vilgan about how an education campaign might be funded.
Mr Colin Grenfell told the Committee that supervisory levies far exceeded
ISC supervisory expenses: `There is an excess of, I believe, approximately
$30 million of accumulated fees over accumulated expenses.' [19]
5.32 The Australian Bankers Association was one of several groups which
considered the Government should make a substantial contribution towards
an education campaign:
The government, we believe, should find whatever funds are necessary
to ensure that the communication of this policy and the associated education
is as good as it can be, and that it covers all employees and all employers.
[20]
Consequences of inadequate education
5.33 Education of employers and employees should, if adequate, assist
employees to make good choices about their superannuation arrangements.
Several witnesses cautioned that if employees make poor or inappropriate
choices, neither the interests of the individual nor the nation will be
served. There is a risk that employees will fail to maximise their retirement
incomes, leading to a lower standard of living in retirement and greater
dependence on the age pension.
5.34 Mr Geoffrey Cook of the AIST told the Committee that the risks to
fund members of making a poor choice were high, and were illustrated by
the English experience of choice:
...we only have to look at the experiences, of which you are well aware,
that took place in England of very slick salesmen using sophisticated
sales techniques to persuade people to change from one fund to another.
The costs associated with this are significant but they can often be
persuaded to go from a better fund to a worse fund. [21]
5.35 Mr Cook supported his comments with his own personal experience:
Indeed, I must say I have some insight into that because amongst some
of my other roles I am the deputy chairman of the Over 50's Friendly
Society where we do sell investment products so I am aware of some of
the techniques that take place in this area and they do disturb me.
I am concerned - and our members, and the members that they in turn
represent - are very concerned about this whole question of making the
wrong choice. [22]
Government response on education
5.36 The Assistant Treasurer, Senator the Hon. Rod Kemp, informed the
Committee he agreed with the views put to the Committee that education
is vital for getting the best results from choice. Senator Kemp stated
that:
We have reiterated very strongly the belief that we have, which is
reflected by industry and by the submissions that you have received,
in the importance of the education campaign. It is important that people
make an informed choice and it is important that we have the strategies
to get out and to reach those people. [23]
5.37 Senator Kemp advised the Committee about the Government's education
strategy for choice of fund. He told the Committee:
A communications strategy is currently being developed by the ATO in
conjunction with other agencies and industry. Briefly, this strategy
will involve the use of direct mail-outs to employers, seminar presentations,
Internet information and editorial and, of course, advertisements and
other material in selected journals. Information will also be disseminated
through peak bodies such as Chambers of Commerce and industry associations.
Particular emphasis will be given to new employees and to employees
changing jobs. [24] ... superannuation providers will play a significant role in the education
process. The communication program will have special regard to the needs
of women, young people and people from non-English speaking backgrounds.
[25]
5.38 The Committee sought information about the form of the education
program and asked the Minister whether the campaign would include television
advertising. Senator Kemp advised there is a range of options, but could
not be specific. Mr Michael Monaghan added to the Minister's answer. He
advised the Committee:
The key here is to find a hook to get people wanting to take an interest.
We have spoken to some financial trainers who have experience in trying
to get people interested in knowing about their financial affairs, and
we are building that knowledge into our program. We need to find a way
to get people interested. We believe that in an area like this it is
important to hit while the interest is up. [26]
Conclusions
5.39 The Committee notes the findings of the Wallis Committee in respect
of education:
It is the joint responsibility of the industry and regulators to ensure
that consumers are educated and well informed. Education should cover
issues such as the rights of members, different life cycle needs and
their implications for risk and return, and the benefits and costs of
exercising choice. [27]
5.40 The Committee notes and welcomes the Government's commitment to
educating employees and employers about choice of fund. However, witnesses
question whether sufficient resources are being devoted to the task. [28]
5.41 The Committee notes the suggestion made by Mr Brian Thomas of the
NRMA concerning the production of a source document about choice. The
requirement for education about choice of fund is likely to be ongoing,
as new people enter the workforce or are faced with choice of fund for
the first time when they change jobs.
5.42 The Committee is, however, mindful of the difficulties that will
be encountered in educating the Australian population about choice. There
is a need for a multiple strategy approach to education that incorporates
elements such as those suggested by Mr Thomas, as well as simpler material
for those who are less able to comprehend such material or will not take
the time to read it.
5.43 The Committee is in substantial agreement with Mr Kevin Casey's
comments regarding realistic expectations about what an education program
might achieve. Clearly, education will be an ongoing requirement and awareness
of the possibilities that may arise from introducing a choice of fund
will take some time to develop.
5.44 This heightens the need for careful consideration about matters
such as the features of default funds and similar measures needed to provide
safeguards for employees.
Footnotes
[1] Evidence, p. 85.
[2] Evidence, p. 4 -5.
[3] Evidence, p. 5.
[4] Evidence, p. 315.
[5] Evidence, p. 29.
[6] Evidence, p. 349.
[7] Evidence, p. 350.
[8] Evidence, p. 344.
[9] Evidence, p. 356.
[10] Evidence, p. 311.
[11] Evidence, p. 272.
[12] Evidence, p. 193.
[13] Evidence, p. 193.
[14] Evidence, p. 194.
[15] Evidence, p. 247.
[16] Submission no. 50.
[17] Evidence, p. 275.
[18] Evidence, p. 239.
[19] Evidence, p. 159.
[20] Evidence, p. 5.
[21] Evidence, p. 105
[22] Evidence, p. 105.
[23] Evidence, p. 414.
[24] Evidence, p. 406.
[25] Evidence, p. 406.
[26] Evidence, p. 417.
[27] Wallis Report, p. 488.
[28] See, for example, Evidence, ABA,
p. 8.
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