Member perceptions of ESG investing through superannuation

Purpose Environmental, social and governance (ESG) risks have the potential to negatively impact financial returns, yet few superannuation funds integrate these considerations into their investment selection. The Cooper Review (2010) identified a lack of member demand as a key impediment to ESG investing by superannuation funds. Given this problem, the aim of this study is to explore superannuation fund members’ perceptions of ESG investing by their funds in order to identify reasons for the lack of demand. Design/methodology/approach An on-line survey was developed and distributed to assess possible reasons why members do not select ESG investment options. In total, 549 Australian superannuation fund members responded to the survey. Findings Results indicate that the majority of superannuation fund members are interested in ESG investing. Members lack awareness of their fund’s approach to ESG investing, and they do not perceive there to be a financial penalty from ESG investing. Finally, members show a preference for consideration of governance issues over both social and environmental issues. Research limitations Respondents are well educated and the majority did not choose their superannuation fund. There was no measure of financial literacy included in the research instrument. There is also a general limitation in surveying superannuation fund members when they lack knowledge about superannuation. Practical implications The results indicate that superannuation members are interested in both superannuation and ESG investing. Given the low take-up of ESG investment options, this finding raises the question of how effectively funds are engaging their members. Social implications The results should be of interest to superannuation funds and may lead to renewed interest in promoting ESG products. Originality/value This is the first study to examine superannuation members’ attitudes and behaviours towards ESG investing in the context of superannuation. The study also adds to our understanding of member decision making in the $1.8 trillion superannuation industry.

Measuring financial literacy of superannuation fund members: Preliminary results

Superannuation is typically the second most valuable asset for most working Australians. Despite such importance, many fund members appear to be disengaged with their ‘forced savings’. The literature shows that financial literacy is one of the key requirements for making informed financial choice. Yet numerous financial literacy studies indicate that financial illiteracy is widespread across different countries and settings. This study assesses the financial literacy of superannuation participants through a survey of 594 fund members. The results show that while most respondents displayed high levels of self-rated and general financial literacy, fewer scored as well in relation to more advanced literacy regarding superannuation investment options.

Engagement with superannuation: Is there really a gender gap?

A recent report produced by Suncorp Bank and The association of Superannuation Funds of Australia (ASFA) found women were less engaged with their superannuation than men (2012). Given that women have lower superannuation balances than men, a lack of engagement could leader to a further reduction in their ability to provide for themselves in retirement (Basu and Drew, 2009). Using a variety of measures of engagement, we find women are mostly as engaged as men. The main determinants of engagement continue to be financial literacy, age and value of superannuation.

Retirement income policy and the taxation of superannuation in Australia

Superannuation is a form of savings for retirement. The savings are invested and earn income, but the proceeds are generally not available until the beneficiary reaches retirement age} The federal government's retirement income policy has three components, two of which relate to superannuation: the age pension, which provides income support to men aged 65 and over and to women aged 62 and over.2 The pension is means tested and does not depend on previous labour force participation or individual contributions; a compulsory superannuation scheme (under the Superannuation Guarantee Charge (Administration) Act 1992 (SGA Act)), which requires contributions to be made by employers on behalf of all employees, whether full-time, part-time or casual;3 and encouragement, through the taxation system, of voluntary contributions to approved superannuation funds.4 In May 2002, the government released a report, the "Intergenerational Report", 5 which identifies issues associated with Australia's ageing population and considers the fiscal implications of those changes. The Report noted that a steadily ageing population is likely to place significant pressure on government finances. It also noted that one of the key priorities for ensuring fiscal sustainability should be "maintaining a retirement income policy that encourages private saving for retirement and reduces the future demand for the Age Pension". 6 The main way the government has sought to encourage that private saving is through the tax system, primarily by the use of tax concessions. Over the past 20 years, however, the taxation of superannuation has grown in an extremely ad hoc manner and is now inequitable, inefficient and overly complex. This article suggests that the taxation of superannuation in Australia is in urgent need of a complete review. The article further asserts that, if an appropriate framework can be devised, changes could be introduced as budgetary pressures allow.

An analysis of the antecedents of satisfaction for superannuation fund members

The factors influencing the satisfaction of superannuation fund members are poorly understood at present, due to a paucity of research. This study looks at the relative influence that five key aspects of the offering of a mid-size Australian Superannuation Fund have on overall satisfaction. Despite the long-term nature of the product and efforts to educate members to think otherwise, short-term financial performance remains a strong influence on member satisfaction. With financial returns varying annually and to a large degree being out of the control of fund managers, the focus on this aspect as the main influence on satisfaction levels is problematic. The evidence suggests that shifting the focus of members towards longer period assessments (eg returns over the past five years) and towards aspects of the funds' offering that are points of differentiation (eg enquiry handling) is the only way to prevent large fluctuations in satisfaction levels and possible defections.

Super Blooper? Time to halt the superannuation juggernaut?

The superannuation industry has increased almost exponentially in Australia over the past decade. The main reason for this is because government  regulation compels employers to pay a fixed portion of employees’ salary  towards superannuation. In this article we suggest that the unremitting  government policy of coercing money towards superannuation is flawed. Superannuation is wrong at two levels. First, on an economic analysis, the evidence does not suggest that (i) individuals who invest in superannuation are necessarily better off than those who apply their income elsewhere; and (ii) there is no evidence that absent a coercive superannuation scheme the government will be unable to sustain people into their old age. Second, at the human and societal level, studies of human well-being show that coercing people to make spending decisions is inimical to human happiness. People flourish best when they are in control of their activities, including their finances. Left to their own devices, many people will not save for a rainy day; however, on balance it is probably better off to be a bit poorer in retirement than to have been deprived of the opportunity to spend 9% of one’s income over the period of one’s working life – when one’s needs are the greatest. Compulsory superannuation should be abolished. Money currently paid as a compulsory superannuation contribution should instead be paid to the employee as a salary.

Superannuation and the ageing myth

The ageing population rationale, which was the central plank underpinning compulsory superannuation, is flawed. The increase in individual wealth in the future more than compensates for the increasing number of older people. In addition to this, compulsory superannuation contributes to the ageing population problem because it provides less money to couples who wish to raise children and hence provides a disincentive for people to have children. The most appropriate method for dealing with the ageing problem is to encourage people to work longer - not because they need the money, but because it is good for their psyche and self-worth.

Evaluating the impact of financial literacy programs on the retirement savings of superannuation fund members

Currently, in Australia, the age pension, paid for out of Commonwealth government taxes, forms the basis of Australia’s retirement income system, however, given the reality of an ageing population has compelled the government to undertake a number of measures to shift the responsibility for saving to the individual, forcing them to accept an increasing level of responsibility for their financial decision-making. In the light of the changing retirement environment, it would be expected that Australians’ would ensure that they became financially literate, however, despite the amount of information and advice available in the market place, this is not the case, and they do not appear to be appropriately prepared for their retirement. Recognising the importance of financial literacy, an increasing number of government agencies, employers, superannuation funds and schools are implementing financial literacy programs in Australia. This article provides an overview of the impact that attending a financial education seminar has on the retirement decisions and settings of participants. Evidence is provided from this research that in the short term, providing financial education programs make a difference to an individual’s intended retirement settings. However, the impact of these education programs in changing investment behaviour is less conclusive.

The influence of educational resources on superannuation investment choices

This paper reports on an investigation of whether educational resources supplied by a superannuation fund provide members with the required information to assist them in making informed choices regarding their superannuation investment funds. The data indicated that certain demographic groups are less likely to utilise the resources provided by their superannuation fund and other information sources. Females, younger individuals, those with low superannuation balances or limited knowledge of financial matters were the key groups identified as less likely to utilise the educational information offered to them.

Improving our superannuation regime : a post-Henry review look at superannuation taxation, raising superannuation balances and longevity insurance

This paper examines what, if any changes should be made regarding certain aspects of the superannuation system. Specifically, it looks at possible changes to the superannuation tax regime, measures intended at increasing superannuation balances, as well as policies aimed at improving the price and availability of retirement income streams. The recommendations of the final report of the Henry Review on these issues are also critically evaluated. The paper finds that a greater targeting of superannuation tax concessions towards middle and lower income earners would make the system more equitable and achieve other desirable goals such as increasing voluntary savings. Furthermore, the available evidence suggests that the current mandatory contributions rate of 9% is adequate, and a higher contributions rate is likely to have more costs than benefits. On the issue of superannuation income streams, the article finds that whilst taxpayers should continue to be allowed to take their superannuation as a lump sum, policies should be implemented to make lifetime annuities more readily available and better value for money. The Henry Review's recommendations on these issues, with some exceptions, are for the most part sound and based on logic.

Australia's superannuation system : a critical analysis

Australia’s superannuation system consists of individual retirement accounts that cannot be accessed until the taxpayer reaches the legislated preservation age. Most of the deposits to these accounts are the mandatory contributions that employers make. Some of the claimed justifications for superannuation are weak. Specifically, claims that superannuation is necessary to prevent a looming ageing crisis and is justified on the grounds of intergenerational equity lose much of their force when examined in the context of substantially higher future incomes. One of the justifications for superannuation that has merit is that it helps promote income smoothing. Although there are some strong arguments for retirement policies that help promote income smoothing, given the long term trend towards income inequality, there are also convincing arguments towards an emphasis on retirement policies that distribute incomes more equally. If income smoothing is on balance seen as a desirable goal then there is merit in Australia’s superannuation system being complemented by a fully funded government run defined benefits scheme.

The Australian superannuation framework : implications for retirement savings

The provision of retirement income has become a challenge for governments across the world. The population is ageing as a result of lower mortality and fertility rates: this places financial stress on government budgets as welfare spending increases, further compounded by a proportional reduction in working-age taxpayers. The Australian government has introduced a compulsory superannuation charge on employers to assist retirement savings. Even though savings in superannuation have increased significantly over the years, many will still have insufficient savings to fund their retirement. Recent changes to the superannuation framework have emphasised the importance the government places on supporting future generations of Australians in retirement.