Choices, Yes, But Grasping Outcomes Is Not Made Easy

Sydney Morning Herald

Wednesday October 29, 2008

Doubtless there will be people reading Grant Agnew's letter (October 28) who will note that employees have had the option to choose their own fund since July 2005. And if they wished they could have chosen a retirement savings account - now Government guaranteed.

This is a furphy for three reasons. First, because most employees would not know about retirement savings accounts. Second, if they did, they would have been persuaded against them. And third, the "default" choice (that is, the employer's nominated fund) is the first option in the choice form, not the last one as a dispassionate observer might expect.

Once the employer's nominated fund is "chosen", a further choice has to be made - the investment option. Again the focus is on the default option, usually a so-called "balanced" mix of investments where about 70 per cent of money is invested in "growth"/risky assets.

Super funds and employers (and even the Government) could have avoided becoming the target of the current angst of super fund members by providing for the default fund to be a retirement savings account or for the default investment option to be capital guaranteed.

This is the natural option for anyone who has had no experience of an investment beyond a bank account and who has not considered the choices available, or who is willing to trust the employer or fund trustees.

Of course, all employees should be encouraged to make a proper choice. Those defaulting initially should be asked to review their position, possibly after six months, certainly after 12. Most people, once they learn about investments, will appreciate the long-term benefits of the balanced mix and will be willing to accept fluctuations in value.

Those who have invested in a balanced mix - whether through default or otherwise - who are 55 or over should review their investment mix. They may reflect on the possible need for greater security for at least some of their money when they retire.

Geoff Dunsford Lindfield

© 2008 Sydney Morning Herald

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