Single Touch Payroll - Industry Super · The ATOs Single Touch Payroll onsultation (STP) ... and...

ATO CONSULTATION

Single Touch Payroll:

Exposing employees to greater risk

ISA SUBMISSION

Issue date 27 July 2017

ABOUT INDUSTRY SUPER AUSTRALIA Industry Super Australia is a research and advocacy body for Industry SuperFunds. ISA manages

collective projects on behalf of a number of industry super funds with the objective of maximising the

retirement savings of over five million industry super members. Please direct questions and comments

to:

Michael Fisher Policy Analyst 03 9657 4350 [email protected]

ISA Pty Ltd ABN 72 158 563 270 Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514

SINGLE TOUCH PAYROLL: EXPOSING EMPLOYEES TO GREATER RISK

Contents

1. Introduction 1

2. The importance of public policy to ensure member interests are prioritised 3

3. Problems of fund choice embedded in Single Touch Payroll 6

3.1 Increased risk of poor choice 7

3.2 Problems of account retention 9

4. The importance of evidence-based design & implementation 10

Single Touch Payroll – ATO Consultation July 2017 1 www.industrysuperaustralia.com

1. Introduction The ATO’s Single Touch Payroll Consultation (STP) Paper on Online Choice of Fund Design begins with a review of the Government’s policy intent for the role of STP in choice of fund. This review is followed by consequential draft design principles and proposals for applying these design principles to process and screen design. Industry Super Australia argues that the ATO interpretation of the Government’s policy intent is too narrow and ignores known facts about consumer behaviour and the existing policy framework1 designed to connect employees to high quality superannuation products. This narrowness biases the design principles and the draft design in ways that foreseeably will lead to detrimental member outcomes. Key problems include:

Designing the electronic form on the assumption employees have detailed information on the funds listed and are equipped to make decisions in their financial interest;

Failing to include information on an individual’s listed funds’ MySuper status, fees, and net returns;

Failing to include information on the employer’s specific default fund;

Failing to safeguard against gaming of STP by financial institutions through the creation of ‘ghost accounts’, particularly for first time job entrants;

Failing to include any functionality to allow the consolidation of multiple accounts – despite being a policy objective;

Failing to undertake adequate user testing to assess whether or not the proposed design adequately overcomes poor financial literacy and behavioural biases and supports good outcomes;

Pre-empting the Productivity Commission’s review into default selection mechanisms. The proposed approach and framework seems to pay little regard to the significant findings and outcomes of the 2010 Cooper Super System Review which lead to the creation of MySuper accounts as part of a graduated choice architecture, ranging from default super for most members to choice of fund for highly informed members. Moreover, the current Consultation Paper ignores MySuper certification as part of a fund choice design. As recently as 24 July 2017, the Hon. Kelly O’Dwyer announced the Government’s plans to improve MySuper products and certification.2 Where government or an agency such as the ATO encourages individuals to act, whether directly or via procedural architecture (or a “nudge”), the government or agency takes on a substantial duty of care to ensure that the actions an individual then takes are in the public interest. In the case of superannuation choice this means that the product selected should be in the employee’s best financial interest and made after consideration of all appropriate information. The ATO proposal does not come close to satisfying that duty.

1 http://www.treasury.gov.au/ConsultationsandReviews/Reviews/2009/Super-System-Review/Publications/Final-Report

2 http://kmo.ministers.treasury.gov.au/media-release/070-2017/

http://www.industrysuperaustralia.com/


http://kmo.ministers.treasury.gov.au/media-release/070-2017/


The problems with the interpretation of policy objectives and design are clearly significant. However, the emphasis and urgency in implementing choice through STP – while neglecting the potential use of STP to act as an effective compliance tool to police unpaid super3 – is unfathomable. This submission contends that the omission of information on MySuper certification, on the employer’s default funds and of APRA 10 year fund performance figures from the screen design for new employees breaches the Government’s policy on default superannuation and choice. We further argue in Section 2 that the omission will be financially harmful to many people using the system and that it will undermine the Government’s retirement income policy objectives. This broader and more consistent interpretation of policy intent also leads to answers to the ATO feedback questions:

Given the Government’s stated policy intent, and the policy intent underlying existing effective legislation, the current design does not meet the stated policy outcome (Feedback Q1);

The new design should allow for online presentation of the employer’s defaults which are MySuper compliant as well as indicating which of the existing funds are MySuper compliant (Feedback Q2 & Q3);

The Government’s commitment to informed choice implies that the audited APRA 10 year return for the funds should be shown on screen (the MySuper returns time series is too short to use as a guide) (Feedback Q3).

Failure to list approved employer and MySuper defaults is likely to lead to poor longer term returns (Feedback Q4 on unintended consequences).

The current paper-based superannuation choice form is a document or process to reflect a choice. The form communicates to the employer that an employee has decided to direct her superannuation contributions to a specific fund. Prior to the document being completed, it is expected that the employee has carefully considered a substantial amount of information and their personal circumstances, and determined to nominate a fund other than the employer default fund (which is subject to stringent regulation because of its default status). The proposed online choice form is materially different than merely an electronic version of the paper form. It is a document not merely to reflect a choice that was made before engagement with the form, but instead seeks to cause an employee to make a choice. This fundamentally changes the nature of the form. It is therefore inconsistent with the government’s stated policy aim of using STP to enable newly commencing employees to complete the paper form by electronic means. Recommendations by ISA To address the serious problems in the proposed choice design process discussed in this submission, we recommend the ATO take the following steps: 1. Postpone implementation of fund choice within STP until the Productivity Commission has concluded its current inquiry into the competitiveness and efficiency of the superannuation system, and the future of the default fund safety net has been decided by government. That is the appropriate time to decide how and to

3 For example, by including mandatory reporting of Ordinary Time Earnings, and STP coverage for all employers (particularly those

with less than 20 employees)




what extent STP can be utilised in a manner consistent with the chosen default model and the protections for employees that the model may include. 2. Redraft the design principles and develop an appropriate testing methodology to determine whether and how an online choice process can be implemented which supports informed decisions that connects employees to good quality and industrially appropriate funds. The redrafted design principles and proposed testing methodology should be open to public consultation. Following conclusion of the consultation the testing should be undertaken and the results made public. Testing should seek to identify the existence and impact of heuristics, and the extent to which biases can be mitigated by means of system design and the provision of an appropriate quantity and quality of choice-relevant information (such as fund performance, MySuper compliance and the employer’s default fund) within an online environment.

2. The importance of public policy to ensure member interests are prioritised Policy makers responsible for a funded retirement income system such as superannuation need to ensure not only that savings are contributed, but that the savings are placed with high quality providers who are focused on the best interests of members. This is not a straightforward matter, as explained by staff of the International Organisation of Pension Supervisors:

The limited capacity of individuals to choose what is best for them means that competition and

markets rarely work effectively within pension systems – leaving too much power in the hands

of pension providers. The problem is only exaggerated where pension providers are commercial

financial institutions. Conflicts of interest can therefore exist between the fiduciary duty to act

in the interest of the pension fund members and beneficiaries and making profits for

shareholders.4

The inclusion of online fund choice in the Single Touch Payroll system will increase the risk that those employees who engage with it will join poor quality funds that will result in them receiving lower incomes when they retire. Understanding why this is likely to be the case requires understanding the purpose of superannuation, and the consequent importance of the ‘default safety net’: those mechanisms that currently exist to protect employees from becoming members of poor quality funds. Superannuation is not just another financial product to be bought and sold, akin to a credit card or a car loan. It is first and foremost an instrument of social policy: employer contributions were mandated in 1992 to help ensure that future generations of retirees would have higher living standards than if they relied solely on the Age Pension. The superannuation system therefore exists for a collective social purpose: not to serve as just another product market in which consumers and providers jostle to maximise their respective interests. If the system performs poorly, partly because large numbers of employees become members of poor quality funds, this will have a collective social impact: future incomes from superannuation will be lower

4 Ashcroft & Stewart, Managing and Supervising Risks in Defined Contribution Pension Systems, International Organization of

Pension Supervisors, Working Paper No. 12 (2010).




than they could have been, reliance on the Age Pension will be greater, and future governments will have less room for fiscal discretion. However, the system has a number of important structural features that complicate the efficient fulfilment of its social policy role. In particular: employees are not persistently engaged, dispassionate financial experts – and the priority of retail providers is to maximise profits and returns to shareholders, not benefits to fund members. The large majority of employers and employees are compelled by law to participate in the superannuation system. There are good reasons why this should be the case. In the absence of compulsion most employees would under-save for their retirement. But a consequence of compulsion in our system is that employees, regardless of their levels of engagement and understanding of superannuation, must make contributions to superannuation funds – funds that vary significantly in their quality and performance. When the Wallis Inquiry into Australia’s financial system reported in 1997, it was assumed by the Inquiry that fund members could better shape the superannuation industry to their advantage if they were given more opportunities to express their individual preferences via making active choices. It was thought that members were sufficiently well-informed, rational and self-motivated to make choices that would compel funds to improve their performance, and potentially force persistently poor performers to exit the system. However, in 2010 the Final Report of the Cooper Review into the superannuation system reflected on the worldview that had been adopted by Wallis thirteen years before:

‘A key tenet of the 1997 Wallis Report was that super fund members should be treated as rational and informed investors, with disclosure and market conduct controls being the main regulatory instruments with which to oversee the industry.

More specifically, these settings assume that members have the tools at their disposal, and the necessary regulatory protections in the market place, to enable them to make optimal decisions about their investment strategies, about when to enter and exit the market, and about what to do with their super on reaching retirement. In a compulsory system, it also assumes that members have the requisite degree of interest.

But, for many members, this is not the case.’5

There now exists a substantial body of research in the field of behavioural economics which has established that many consumers, particularly when confronted with complex and unfamiliar products, do not behave rationally.6 This is particularly true in the context of markets for ‘credence goods’, such as superannuation, where information asymmetry, the infrequency of choice, and the time-delayed nature of the eventual benefit make it very difficult for consumers to accurately assess the true value of competing product offerings.7

5 Super System Review Final Report, p. 8.

6 An overview of behavioural economics and its relevance to policy design is provided by Lunn, P. (2014) Regulatory Policy and

Behavioural Economics, OECD, Paris.

7 ‘Credence goods include medical procedures and all professional services. Few consumers possess sufficient medical or

professional skills to evaluate whether an operation was necessary or performed properly, a solicitor or accountant trustworthy, or

a pension plan good value; such services are generally taken on trust,’ p. 119 in Asch, D. (2001) ‘Competing in the new economy’,

European Business Journal, Vol. 13, No. 3.




The evidence is strong that when superannuation fund members do engage and make choices, such as deciding to switch between investment options, such choices are negatively associated with financial outcomes.8 Moreover, it is unrealistic and inefficient to expect all employees to acquire the knowledge and skills to make rational choices in a superannuation context. To do so would require millions of fund members to acquire a minimum basic knowledge of topics such as: (i) the risk-return relationship, (ii) portfolio diversification, (iii) the impact of comparative pricing structures on net returns over time, (iv) the interaction between different superannuation products and the tax-transfer system. It is because consumers of complex financial products do not have the capacity to acquire and apply such knowledge that when they do make choices they resort to ‘heuristics’: ad hoc mental short-cuts that consumers use when confronted with complex or unfamiliar options. These substitute for the expert knowledge they would need to make fully rational choices, but which is impractical to acquire. Behavioural research has identified a number of heuristics commonly used by consumers in this context.9 These include:

The Familiarity Heuristic: when consumers opt for a product because the name or branding is familiar, making the assumption that familiarity and recognition is a proxy for quality.

The Affect Heuristic: when consumers opt for a product because of intuition or a ‘gut feeling’, perhaps because the product triggers a memory or association with a positive event in their lives.

The Availability Heuristic: when consumers rely on a limited amount of immediately available information to make a product choice, although a rational choice would require they expend resources to acquire additional but less accessible information.

The ATO consultation and user-testing papers do not demonstrate any awareness of the existence of these heuristics and their relevance to how the fund choice within STP may actually operate. In practice, research has established that consumers use a mix of these and other heuristics when they are required to make decisions in relation to complex products. This is particularly the case in the context of financial products where consumers are not persistently engaged, dispassionate financial experts:

‘When uncertainty characterises the decision-making context, limited availability of information, or urgency, simplifying shortcuts or heuristics can lead to financial planning errors…Heuristic-driven decisions are made quickly and are frequently accompanied by relatively high emotions (or affect) and serious financial decision-making errors.’10

8 See, for example, Gan, S. et al. (2014) ‘Individual investor portfolio performance in retirement savings accounts,’ (2014) Australian

Journal of Management (analysing 10 years of data for 15,000 members and finding that “switching activity is invariably associated

with lower risk-adjusted returns (alphas) and this is also evident across the various analyses reported.”)

9 An overview of heuristics and the behavioural biases they give rise to is provided by Baddeley, M. (2013) Behavioural Economics

and Finance, Taylor & Francis. See also: Tversky, A. and D. Kahneman (1974) ‘Judgement under Uncertainty: Heuristics and Biases’,

Science, Vol. 185, No. 4157.

10 Howard, J. and R. Yazdipour (2014) ‘Retirement Planning: Contributions from the Field of Behavioural Finance and Economics’, p.

290, in H. Kent Baker and V. Ricciardi (eds.) Investor Behaviour: The Psychology of Financial Planning and Investing, John Wiley &

Sons.




Under current arrangements, employees are protected by default fund settings, which require the employer default fund to be drawn from a short list named in the appropriate modern award or enterprise agreement. Funds are selected by the representatives of employers and employees, not by low-information individuals who utilise heuristics. As a result, the named funds are more likely to be in the best long-term financial interests of employees.11 While most employees have the right to choose any fund they wish, most do not. This is not a ‘failure’ on their part that can be simply changed to their advantage by using technology to push them to make choices. Low levels of engagement are a rational response to the complexity of a superannuation system that employees do not have the cognitive and material resources to navigate to their benefit. These are among the reasons the proposed inclusion of online fund choice in the STP system is highly problematic.

3. Problems of fund choice embedded in Single Touch Payroll There are a number of serious problems with how STP proposes to facilitate fund choice. These arise because the proposed superannuation choice process conflates two processes that are currently separate. Currently, the superannuation choice form is a document or process to reflect a choice. In other words, the form is the official document that communicates to the employer that an employee has decided to direct her superannuation contributions to a specific fund. Prior to the document being completed, it is expected that the employee has carefully considered a substantial amount of information and their personal circumstances, and determined to nominate a fund other than the employer default fund (which is subject to stringent regulation because of its default status). The proposed online choice form is materially different from a mere electronic version of the paper form. It is a design that does not merely serve to reflect a choice that was made before engagement with the form – it is one that may cause an employee to make a choice. Moreover, it encourages completion of that choice on the basis of an insufficient quantity and quality of vitally important information.12 It is by changing the nature of the process to encourage a choice that the proposed form becomes fundamentally flawed and likely to increase the risk of poor financial outcomes for employees. This is because (i) the choices made when engaging with the form will be made without ensuring all material information about each product choice, and the employee’s facts and circumstances, is available and considered, and (ii) the architecture of the form may increase the propensity of employees to choose funds outside the default safety net.

11 In its inquiry into the listing of default funds in modern awards, the Productivity Commission noted that in the eight years to

2011 funds named in awards delivered an average of 6.4 per cent per annum return to members compared to 5.5 per cent for non-

award funds: Productivity Commission (2012) Inquiry into Default Superannuation Funds in Modern Awards. Analysis of

SuperRatings data by ISA found that in the 10 years to September 2016 award defaults returned an average of 5.33 per cent over

the period, compared to 4.45 per cent for all non-default options in the SuperRatings database.

12 This qualitative change from reflecting a choice already made to initiating and completing a choice is not consistent with the

stated policy intent, which is to enable newly commencing employees to complete the existing paper choice form by electronic

means.




A consequence of the proposed design is to encourage employees to choose an account other than employer default, which raises serious initial risks and second round effects. The initial risk is an increased risk of a poor choice, and the second round effects will be the market behaviour of some providers to take advantage of the Single Touch Payroll to the detriment of members (which, like all regulatory arbitrage efforts, are impossible to fully predict).

3.1 Increased risk of poor choice

The current Standard Choice Form provides for employees to nominate an APRA fund or Retirement Savings Account different from that nominated by the employer. If the employee decides to make such a nomination, they must attach a letter from the chosen fund stating that they are a complying fund and that they will accept contributions from the relevant employer. For some of the reasons outlined above, there is considerable risk that an individual employee acting in remove from the processes that have been collectively decided the employer’s default fund, may make a poor choice. However, this risk may be somewhat mitigated by the requirement that the employee must possess and manually enter relevant fund details, as well as attaching a letter from the chosen fund that they will accept the employers’ contributions. There is no evidence base relating to how employees interact with the paper-based choice process and the extent to which the obligations they encounter result in more considered and rational choices. Nevertheless, it is plausible that these obligations may encourage some choice employees to engage with questions of fund quality – possibly reducing the risk of a poor outcome in some cases. However, the choice-risk mitigations that may operate in the paper-based context are substantially diluted in the context of STP. In the STP context, on the online form the option to make a choice comes first, potentially suggesting that choice is the preferred or most appropriate response.13 The accompanying text recommends that the employee check the fees, services, benefits and performance of the relevant fund before a choice is made. However, this recommendation is not reinforced by requiring the employee to indicate that they have undertaken relevant research before proceeding, or by any warnings of what the financial consequences of a poor choice could be. The recommendation text is boilerplate and may be seen as tokenistic, something which can be overlooked before proceeding to the next section of the screen. The choice employee is then asked to choose between nominating one of their existing funds and nominating their employer’s super fund. Again, the sequential priority given to the choice option over the employer option may be understood as implying that choice is the preferred and more legitimate course of action. If the employee selects the existing fund option, a list of up to ten funds listed in alphabetical order will be displayed and the employee can use a drop-down menu to select one from that list. There are a number of problems with this process:

13 A weakness of the current standard choice form (first issued in 2014) is that it places the employer fund option below the APRA

fund and SMSF options. However, the 2010 version of the form placed the employer option first. The reasons for this design

change, and its evidentiary justification in terms of how it better serves to protect the interests of employees, are not clear.




a) The name of the employer’s default will not be available via the online screen. That more information about non-employer funds will be readily available in the context of navigating the screen may prompt employees to prioritise the choice of a named listed fund. b) If the employee decides to choose a fund from the alphabetical list, there is insufficient readily available information on which basis a rational choice could potentially be made. As a minimum, such information would need to include:

Performance data. Based on the most recent APRA audited five and ten year fund level net return data, which of the listed funds performs better than others – and how does the employer’s fund compare in this context?

MySuper compliance. Which of the options available to the employee currently complies with MySuper regulations and therefore offers some protection from high fees and inappropriate asset allocations?

Insurance. Which of the options offers insurance most appropriate to the employee’s new job? The nature and cost of insurance coverage can vary widely, and some employers and funds offer group insurance policies appropriate to particular occupations. A rational fund choice should include consideration of the potential implications of not joining an insurance plan that may be specific to the new employer.

In theory, an employee could take note of the 6, 8 or 10 funds listed on the screen, proceed to research their comparative performance histories, MySuper compliance status, and insurance offerings – and then return to the screen to make an informed choice. However, unlike the paper-based approach (and simply creating an electronic version of the paper-based form) the structure of the decision making process underlying the proposed Choice of Fund form within STP supports a different process. In particular, the approach in connection with STP encourages – by design – a choice without prior effort or research by the employee. Employees who get to the fund listing stage will likely resort to heuristics:

The ‘familiarity heuristic’ may mean they choose a fund that is most immediately recognisable, assuming that this equates to quality. The chosen option may not be a MySuper product, increasing the risk of high fees and low returns.

The ‘affect heuristic’ may mean they act on ‘gut feeling’, perhaps assuming that because one of the listed funds has a higher balance than the others that this is an indicator of good performance, when it may simply mean they were a member of that fund for the longest period of time.

The ‘availability heuristic’ may mean that they attempt to choose on the basis of the information that is immediately in front of them, perhaps because they do not know what other information they should be considering and where it could be obtained. There is no evidence that employees know where reliable performance, compliance and insurance data can be accessed and how it should be interpreted. The assumption that they do, or will quickly learn, is misplaced.

The present design of fund choice within STP effectively assumes that employees have the knowledge, resources and motivation to effect rational choices. The evidence is that they do not, and the STP choice process significantly increases the risk that any choices they do make will not be in their best interests.




3.2 Problems of account retention

A stated objective of STP fund choice is that it ‘will allow people to easily retain the same superannuation account when starting a new job.’ There are a number of problems with this objective. Firstly, the objective assumes that retaining their current fund is inherently desirable for employees. However, as noted above, fund quality varies significantly. The new employer fund may offer a significantly higher rate of return and/or an insurance plan more appropriate to the new employee’s industry and occupation. Fund quality can also change over time, as some funds decline in performance while others improve. A perverse outcome of an emphasis on fund continuity may be to significantly disadvantage some employees in terms of their eventual retirement balances and/or their insurance costs and coverage. Secondly, it assumes that employees are readily familiar with their current fund. If they have multiple accounts, and are therefore in routine receipt of printed statements and related marketing materials from a number of funds, it may not be obvious to many employees what their current fund is. Therefore, their choice of fund from the STP list may be ill-informed and random, perhaps risking that they recommence contributions to a fund that is not currently MySuper compliant. Alternatively, they may jump to the assumption that their current fund is the one with the highest balance, or the one from which they have received their most recent statement. In addition, members may know their fund by its brand name rather than its full fund name. For example, many employees in construction are likely to know their fund as ‘Cbus.’ In the context of the STP choice screen they may be asked to choose their current fund from options that include the ‘Building Unions Superannuation Scheme’ and the ‘Construction & Building Unions’ scheme. The first is BUSSQ, the second is Cbus. However, it may not be obvious which of these a current Cbus member should choose in order to retain their current membership. They may choose BUSSQ because it appears first in the alphabetical list. The focus on retention also discounts the reality that, over time, the industries and occupations that people are employed in typically change. An 18 year old who begins their working life in a restaurant may not be best served by remaining in the superannuation fund they join at that time if they later become a firefighter or a Federal public servant.14 Finally, it is not clear from the ATO consultation paper how a first-time entrant to the labour force who meets the SG eligibility criteria would engage with online choice. A potential risk in this context is that as part of their other transactions with financial institutions, such as opening their first bank account, the new entrant is provided with a super account (perhaps with a small opening ‘gift’ balance) which then potentially becomes their life-time default account within the STP system. The account would have this status as the result of a product bundling marketing strategy – not

14 Problems of account proliferation and multiple accounts are significant. ISA has made recommendations to Stage 2 of the current

Productivity Commission inquiry to deal with these: see ISA (2017) Risky Business: why the proposed models would not protect

members. In short, we recommend that a member’s entitlements automatically transfer to the member’s new active fund when

they change employment. If a member starts a second job, their contributions from the second job should be placed in their

existing active fund. Given the low level of member engagement and understanding of super, a reliance on member knowledge and

active choice is not sufficient to tackle account proliferation.




because it had been actively assessed and chosen by either the member or any employer/employee representative.

4. The importance of evidence-based design & implementation The present STP fund choice design assumes a degree of rationality, cognitive capacity and motivation in respect of superannuation for which there is no evidence. The research that has examined consumer behaviour in the context of markets for complex financial products has found that consumers do not think and act rationally: they use a range of mental short-cuts, or heuristics, to resolve difficult decisions in ways that minimise time and effort. The financial results for such consumers are usually poor. Designing fund choice in STP assuming different kinds of behaviour is not credible and is potentially dangerous. The poor level of fund member knowledge and understanding of superannuation is confirmed by the ATO’s Usability Testing Report. Eight individuals took part in the testing of the STP choice process. The report states:

‘Most of the participants involved in this testing said they were not very interested in super and rarely, if ever, checked their super fund balances, or did any research to determine if their current (or potential) super fund was a good option for them.’15

However, the report notes:

‘The ability to select their preferred super fund as part of the new employee online process was particularly welcomed by individuals.’16

It is not unusual for consumers to express support for choice, in the abstract, because they believe they can make rational choices if given the opportunity to do so. In the behavioural economics literature this is known as ‘consumer overconfidence.’ Research has established that overconfidence is common, particularly when consumers engage in markets where the proliferation of product attributes and pricing structures leads them to believe an optimal or ‘correct’ choice is available and they are capable of making it. However, the results are usually poor:

‘…consumer overconfidence causes consumers to systematically misweight different dimensions of product quality and price. Poor choices based on biased estimates of a product’s expected

costs or benefits are the result.’17 The ATO report records positive attitudes to the choice aspects of the draft STP screen. However, recording attitudes expressed in response to a draft screen is not an adequate substitute for testing actual behaviours

15 ATO User Testing Report, p. 14.

16 Ibid, p. 13.

17 Grubb, M.D. (2015) ‘Overconfident Consumers in the Marketplace,’ Journal of Economic Perspectives, Vol. 29, No. 4, p.9. Some

firms make active use of consumer overconfidence by offering a wide range of options attached to one generic product, some of which are clearly sub-optimal from a consumer’s perspective. The consumer is likely to identify the sub-optimal option, giving them confidence that because they have avoided a poor choice the choice they then proceed to make must be a good one.




and actual outcomes under conditions designed to replicate real-world choice environments. Effective testing in this context would need to explore questions such as:

To what extent do test participants use different heuristics when they make online fund choices? What are the choice consequences when they do so? Do heuristic behaviours vary by age, gender and occupation?

What forms of readily available in-screen information (such as long-term net returns, MySuper compliance and insurance coverage) may reduce reliance on heuristics and lead to more rational outcomes?

Do participants actively compare the employer default with online options? What data do they use to make comparisons and to what effect?

Are participants aware of the minimum forms of information they would need to minimise the risk of a poor choice, and where that information can be obtained?

To what extent do they make use of key data, such as net returns, when exercising choice?

Do participants understand what MySuper is, why compliance is important, and how comparative MySuper performance should be assessed prior to making a choice?

And, critically, when employees do make choices in the test environment, how often would they have chosen the fund that results in the best financial outcomes? Put another way, how often would a control group of employees who join the employer’s default have outperformed the employees who were subject to the draft STP choice of fund process?

In the absence of robust answers to such questions any online choice function within STP will lack a sufficient evidentiary basis to justify its implementation. The ATO must have a high degree of confidence, grounded in a base of conclusive evidence, that encouraging consumers to choose a fund the outcomes will be in the best interests of those employees.



Single Touch Payroll - Industry Super · The ATOs Single Touch Payroll onsultation (STP) ... and...

Documents

Transcript of Single Touch Payroll - Industry Super · The ATOs Single Touch Payroll onsultation (STP) ... and...