Fund Members Research Articles

Superannuation Fund Members and Financial Planning Advice

Financial advice has become a major public policy issue in Australia. Following the introduction of compulsory superannuation in Australia in 1992 superannuation assets have rapidly increased to more than $1 trillion. As superannuation assets grow and fund members are increasingly responsible for deciding how those assets are invested, it is imperative that members make informed decisions. To make informed decisions members need to either have an adequate level of financial knowledge and skills, or consult experts, such as financial advisers. Prior research has found low levels of financial literacy among the general population which necessitates reliance on expert advisers. However, there has been much criticism of the role of financial planners in delivering reliable and effective advice to clients on wealth maximisation. Conflicts of interest and inappropriate fee structures have been frequently cited as major reasons for a lack of confidence in the value of the advice provided by financial planners. Despite the concerns about the value of the advice provided by financial planners there is little evidence on why investors seek or do not seek the services of those experts and whether other sources of advice act as substitutes or complements. Based on this motivation, this study seeks to identify factors that explain the choice of financial planners and whether financial literacy is associated with this choice. These issues are examined using a unique sample of superannuation fund members in a large Australian superannuation fund. Based on 1,935 survey respondents the findings show financial literacy is a key factor that explains the decision to seek the services of a financial advisor. Interestingly however, it is those members with more advanced (investment) financial literacy rather than those with general financial literacy or low levels of financial literacy who are most likely to use a financial planner. Demographic factors, including age (older members), gender (male), work status (full-time workers), and region (metropolitan) are associated with the choice of a financial planner. Not surprisingly, fund members with more at stake (with large superannuation balances) and who invest in more risky investments (equities) tend to use financial planners. Importantly, we find that using a financial planner is associated with using other sources of financial advice which suggests that advice sources are complements rather than substitutes. These findings have a number of public policy implications. First, financial planners tend to be used by those with greater financial literacy which suggests that those that potentially have more to gain from the use of financial planners are not using planner services. Second, the underrepresentation of younger, female, and non-metropolitan members in the group that uses financial planners suggests that those members are more at risk of lower retirement savings and potentially, a high reliance on the public pension in their retirement. Finally, the complementary finding that members using financial planners also use other sources of financial advice suggests that those not using financial planners do not avail of other (non-financial planner) sources of financial advice. Consequently, those members may not be well informed about their investment choices leading to sub-optimal investment choices.

Captured Legislators and Their Twenty Billion Dollar Annual Superannuation Cost Legacy

By December 2010 total superannuation assets had reached $1.3 trillion, covering 94% of all Australians. This substantial growth was not a natural evolution. Rather it can be directly traced to three decades of bipartisan reform strategies based on a claimed public interest ideology. This article investigates the concerns raised by Superannuation Select Committees, consumer and union organisations, independent researchers and actuarial experts that, in contrast to the public interest rhetoric, the regulatory reforms have primarily achieved major private interest gains for powerful lobbyists. The findings of this analysis indicate that the democratic power of Australian governments to set economic policy agendas has been progressively eclipsed by the power of the financial services industry's producer groups. Rather than producing a best practice governance structure, fund members remain trapped in a post-reform cost paradox: no right of exit regardless of the deepening cost burden imposed. In an industry set to control a projected nominal figure of $6.7 trillion in superannuation assets by 2035, these findings suggest that the real change necessary to improve the deepening cost burden faced by fund members within a life-long, mandatory superannuation investment is now beyond any government's reach.

Explaining Pension Fund Product and Governance Disclosure in Australia

Fund disclosure is an important communication tool between trustees and fund members for product comparison and credibility verification. We examine what drives Australian superannuation funds to disclose their funds product information to the market. Our research derives a model that shows how the proprietary costs of disclosure, market competition, valuation benefits, and fund governance drive the disclosure of information about trustee, investment agents, fees, and overall practices. The research findings indicate that market competition has a significant positive influence on voluntary disclosure, while disclosure costs are negatively related to disclosure. The disclosure practices of various fund types and governance models are also significant factors, as is the multi-layer agency relationship in the superannuation funds industry.

FINANCIAL LITERACY AND PENSION INVESTMENT DECISIONS

The call for enhanced financial literacy amongst consumers is a global phenomenon, driven by the growing complexity of financial markets and products, and government concerns about the affordability of supporting an ageing population. Worldwide, defined benefit pensions are giving way to the risk and uncertainty of defined contribution superannuation/pension funds where fund members now make choices and decisions that were once made on their behalf. An important prerequisite for informed financial decision‐making is adequate financial knowledge and skills to make competent investment decisions. This paper reports the findings of an online survey of the members of a large Australian public sector‐based superannuation fund and shows that although respondents generally understand basic financial matters, on average, their understanding of investments concepts, such as the relationship between risk and returns, is inadequate. These results highlight the need for education programs focusing specifically on developing fund members’ investment knowledge and skills to facilitate informed retirement savings decisions.

When does an IORP operate cross-border?

The EU Directive on the activities and supervision of institutions for occupational retirement provision was originally envisaged as a mechanism to facilitate pension planning across the EU for pan-European employers. One of the main objectives of the Directive was to allow pension funds to benefit from the Internal Market principles of free movement of capital and free provision of services. As such, the Directive enables the management of occupational pension funds for companies established in one Member State to operate across the EU, allowing a pan-European company to have just one pension fund for all its subsidiaries all over Europe. It also put in place minimum prudential standards, which are designed to ensure that pension fund members and beneficiaries are properly protected. However, take-up of cross-border IORPs has fallen well below expectations. This article examines some of the different approaches adopted for identification and recognition of pan-European pension funds, and considers the impact of such approaches in encouraging (or otherwise) cross-border activity.

Recent Experiences in Managing Capital Inflows—Cross-Cutting Themes and Possible Policy Framework

Emerging markets (EMs) are experiencing a surge in capital inflows, lifting asset prices and growth prospects. While inflows are typically beneficial for receiving countries, inflow surges can carry macroeconomic and financial stability risks. This paper reviews the recent experience of EMs in dealing with capital inflows and suggests a possible framework for IMF policy advice on the spectrum of measures available to policymakers to manage inflows, including macroeconomic policies, prudential measures and capital controls. Illustrative applications of this framework suggest that it may be appropriate for several countries, based on their current circumstances, to consider prudential measures or capital controls in response to capital inflows. The suggested framework is intended to inform staff policy advice to all Fund members with open capital accounts. It forms part of a broader effort to sharpen Fund surveillance, preserve evenhandedness, and foster greater global policy coordination. As indicated in the Supplement to this paper, this broader effort includes the development of “global rules of the game” on macroprudential policies, capital account liberalization, and reserve adequacy, and the preparation of spillover reports assessing spillovers from the five systemic economies—all of which will inform the current and broader framework being developed.

The Changing Political Economy of Pension Fund Accounting Regulation: A Comparative Study of Four Anglo-American Countries

This paper examines the inter-relationships between changes the political economy of pensions law and changes in pension accounting regulation in four Anglo-American countries. A four fold property rights framework is developed which identifies the common inequities in the ownership of pension deficits and surpluses. Deficiencies are identified relating to various issues concerning the recognition, measurement and disclosure of pension fund surpluses or deficits. These aspects in include inequality in pension provision, the capture of pension regulation through delegation to narrow professional bodies, the corporatisation of pension accounting language and discourse, and the general opaqueness and dimunition of public pension regulations. Until the 1970s, pensions were generally seen as being a paternalistic social security and pension funds were relatively unregulated. However the social, economic-consequences of ageing populations on the financing of public pensions has brought about a new emphasis on professionally-developed accounting standards as a primary means of regulating the accountability of pension funds. This paper analyses how the changing political economy of pensions differentially affected: (i) the measurement of pension liabilities; (ii) the development of pension fund accounting standards; and (iii) how liabilities to pension fund members are measured and recognised.

Review of the Method of Valuation of the SDR

This paper provides the basis for the quinquennial review of the method of valuation of the SDR, and the financial instruments used to determine the SDR interest rate. Under the governing Board decisions, the new SDR valuation and interest rate baskets would come into effect on January 1, 2011. The review examines developments during the 2005–09 period in the variables relevant to the SDR valuation. These variables include exchange rates, exports of goods, services and income, and reserve holdings. Data for exports of goods and services show China has become the third largest exporter among Fund members and monetary unions including Fund members. Nonetheless, indicators such as reserves and international banking and debt securities suggest that the currencies in the current SDR basket continue to predominate in international financial transactions, and these currencies also account for the bulk of global foreign exchange turnover. At this time, the Chinese renminbi would not appear to meet the criteria for being determined by the Fund to be a freely usable currency, which is also required for inclusion in the SDR basket.

The role and relevance of domain knowledge, perceptions of planning importance, and risk tolerance in predicting savings intentions

The need for individuals to increase retirement savings has been widely promoted, yet our understanding of the motivations of individuals to save at a higher rate remains sparse. This paper reports the findings of a survey of 2300 retirement savings fund members and their motivations to contribute more to savings and to actively manage their investment strategy. Utilising the theory of planned behavior, the study reveals respondent’s self-reported attitudes, subjective norms and perceptions of behavioral control account for a high proportion of the variance in behavioral intention. Contrary to expectations, the study finds that respondent’s risk tolerance adds little to the prediction of behavioral intention. By contrast, perceptions of planning importance and self-assessed planning preparedness (domain knowledge) are found to exert powerful indirect influences on behavioral intentions via the perceived behavioral control construct. This novel finding confirms the relevance of planning constructs and financial literacy to an understanding of retirement savings behavior, and establishes a need to improve levels of financial literacy in society.

The demand for EU cross-border care: An empirical analysis

AbstractAlthough there is much political discussion on cross-border care within the European Union, the data regarding the extent and characteristics of actual demand are poor. As national and EU policymakers as well as health insurance funds need decision support in this field, the present paper provides an empirical analysis of responses from a survey conducted to analyse experiences regarding EU cross-border care. The survey, conducted by Germany's statutory health insurance fund, Techniker Krankenkasse, selected 34,000 fund members who received medical treatment in other EU member states in 2007. A total of 11,898 questionnaires were returned within a four-week period, which is testament to the strong interest in cross-border care. The survey sample was assumed to be representative, and the results were extrapolated to the statutory health insurance system and Germany as a whole. The results show the characteristics of demand in Germany, which EU member states are most frequented, which illnesses and ...

The law regarding the division of the retirement savings of a retirement fund mumber on his or her divorce with specific reference to <i>Cockroft v Mine Employees Pension Fund</i>, (2007) 3 BPLR 296 (PFA)

This article analyses the recent amendments to the Pension Funds Act 24 of 1956 relating to the divorce benefit, particularly the amendment of section 37D. This amendment has brought about changes, and will contribute positively to the development of South African retirement law. The allocation and payment of a share of a retirement fund member's retirement savings on divorce has been the subject of intense debate in the retirement funding community, especially in view of the unfairness to non-member former spouses (who are usually women) of the law in this regard before 1 November 2008.

Fiscal Rules—Anchoring Expectations for Sustainable Public Finances

The sharp increase in fiscal deficits and public debt in most advanced and several developing economies has raised concerns about the sustainability of public finances and highlighted the need for a significant adjustment over the medium term. This paper assesses the usefulness of fiscal rules in supporting fiscal consolidation, discusses the design and implementation of rules based on a new data base spanning the whole Fund membership, and explores the fiscal framework that could be adopted as countries emerge from the crisis.

The Swedish Ghent system and trade unions under pressure

In January 2007 the Swedish centre-right government in office since September 2006 raised considerably fees for union unemployment funds. Union membership (fund membership included) therefore suddenly became much more expensive. Trade unions lost 8% of their members over two years and union density fell by 6 percentage points, while unemployment funds were hit by a still larger decline. In 2008, fund fees were more closely linked to the rate of unemployment among the members of each fund. The result was a marked social polarisation of fund fees, in 2009 further sharpened by accelerating unemployment. In addition to describing the consequences of the government policy, this article discusses the ambition of the government to influence wage formation by remodelling the Swedish Ghent system.

Dealing with Country Diversity: Challenges for the IMF Credit Union Model

We develop a model in which countries can protect themselves against shocks by subscribing to a credit union that shares the key features of the International Monetary Fund, or by self-insuring through accumulating reserves. We assess the impact of the increasing heterogeneity of the Fund's membership on the political equilibrium Fund size and hence its effectiveness as a credit union. We find the Fund's existing lending framework is well suited to a world in which its members have homogeneous interests, but as the membership has become more heterogeneous the Fund is increasingly unlikely to provide financing on a sufficient scale to meet the demands of higher-risk members, leading them to rely more heavily on self-insurance. We conclude that the framework governing the Fund's lending operations may no longer be appropriate.

Knowledge and Perceptions of Superannuation in Australia

Least squares and binary logit models are used to predict knowledge and perceptions of superannuation (private pensions) in Australia on the basis of demographic, socioeconomic and financial characteristics. The data is drawn from the ANZ Survey of Adult Financial Literacy in Australia and relates to 2,516 superannuation fund members. Knowledge of superannuation is defined, amongst other things, in terms of understanding superannuation fees, charges and statements, recognising the voluntary and compulsory nature of additional employee and employer contributions, and being aware of the lower taxation of superannuation compared to other investments. Factors examined include gender, age, ethnicity, occupation, educational level, and family structure, along with household income, savings, and debt. In terms of specific superannuation knowledge, substantially more than half of respondents knew that employers are obliged to make contributions on behalf of employees and that employees can make additional voluntary payments above these payments. Slightly more than half knew that superannuation is taxed at a lower rate than other investments. However, only one-third of fund members knew how to read and understand their statements or the approximate rate of contribution employers were required to make on their behalf, or had worked out how much they needed to save for retirement. Overall, about 60% of respondents could correctly answer only 50% or less of the questions posed. The evidence also suggests that knowledge of superannuation is unevenly spread across respondents. Such knowledge is generally lowest for females, those from a non-English speaking background, those with low levels of education and persons aged less than thirty. Knowledge is generally better for professionals, those aged over 40 or nearing retirement and the university educated. The models best predict the compulsory nature of employer contributions, the voluntary nature of employee contributions, and knowledge that the government will not make up any gap arising from a failure to undertake retirement planning.

EFFECTIVE MANAGEMENT AND IMPLEMENTATION OF THE IMO-IPIECA REGIONAL OIL SPILL PREPAREDNESS AND RESPONSE PROGRAMME FOR CENTRAL & WESTERN AFRICA (GI-WACAF)

ABSTRACT The GI WACAF programme is led and funded jointly by the IMO and IPIECA members. Its purpose is to improve oil spill preparedness and response capability across 21 coastal states of West and Central Africa. Launched in 2006, this programme takes earlier IMO/IPIECA work forwards in a newly focused, structured and sustained manner to progress tangible change. The programme faces many challenges with rapidly increasing oil activities in the region and a generally low level of current preparedness; set against improvements needing to suit individual country circumstances and also be consistent and coordinated across the region. Reference is made in this Paper to the IMO'S strategy for oil spill preparedness and response (OPRC Convention 1990). Drawing these together, the six Key Elements of Preparedness, which underpin the GI-WACAF programme, are summarised. The GI-WACAF programme has a Project Coordinator, working under the guidance of the IMO and IPIECA funding members. An action plan was developed after consultation with government and oil industry representatives from the countries in the region, taking the six Elements of Preparedness and translating them into a workable plan for action and improvement. This Paper describes the programme management system and the key features critical to make tangible progress. These include Clarity of Purpose; Commitment from Key Stakeholders; a gap analysis on the Elements of Preparedness and measurable objectives; a Network of ‘Implementers’ and ‘Influencers at different levels of government and industry; follow-up and monitoring of results and achievement; and a Biennial Review to ensure process improvement and action planning. Through this refocused and business-like approach, demonstrate success is being achieved, and will be illustrated in the Paper. Every country and region has unique circumstances but the underlying principles of oil spill preparedness and response are common. This Paper has relevance for any organisation involved in change/improvement processes; both in setting programme objectives and in the essential programme management and implementation.

Changes in out-of-pocket payments for healthcare in Vietnam and its impact on equity in payments, 1992–2002

Economic reforms in Vietnam initiated in the late 1980s included deregulation of the health system resulting in extensive changes in health care delivery, access, and financing. One aspect of the health sector reform was the introduction of user fees at both public and private health facilities, which was in stark contrast to the former socialized system of free medical care. Subsequently, health insurance and free health care cards for the poor were introduced to mitigate the barriers to seeking care and financial burden imposed by out-of-pocket (OOP) health payments as a result of the user fees. To examine the determinants of seeking care and OOP payments as well as the relationship between individual out-of-pocket (OOP) health expenditures and household ability to pay (ATP) during 1992-2002. The data are drawn from 1992-93 and 1997-98 Vietnam Living Standard Surveys (VLSS) and 2002 Vietnam Household and Living Standards Survey (VHLSS). We use a two-part model where the first part is a probit model that estimates the probability that an individual will seek treatment. The second part is a truncated non-linear regression model that uses ordinary least-squares and fixed effects methods to estimate the determinants of OOP payments that are measured both as absolute as well as relative expenditures. Based on the analysis, we examine the relationship between the predicted shares of individual OOP health payments and household's ATP as well as selected socioeconomic characteristics. Our results indicate that payments increased with increasing ATP, but the consequent financial burden (payment share) decreased with increasing ATP, indicating a regressive system during the first two periods. However, share of payments increased with ATP, indicating a progressive system by 2002. When comparing across years, we find horizontal inequities in all the years that worsened between 1992 and 1998 but improved by 2002. The regressivity in payments noted during 1992 and 1998 might be because the rich could avail of health insurance more than those at lower incomes and as a consequence, were able to use the healthcare system more effectively without paying a high OOP payment. In contrast, the poor either incurred higher OOP payments or were discouraged from seeking treatments until their ailment became serious. This inequality becomes exacerbated in 1998 when insurance take-up rates were not high, but the impact of privatization and deregulation was already occurring. By 2002, insurance take-up rates were much higher, and poverty alleviation policies (e.g., free health insurance and health fund membership targeted for the poor) were instituted, which may have resulted in a less regressive system.

Normative Change from Within: The International Monetary Fund’s Approach to Capital Account Liberalization

Beginning in the mid-1980s, in the absence of active encouragement from the IMF's management or member states, the staff began to encourage the liberalization of capital controls as a norm. This behavior constitutes a puzzle for the conventional wisdom, which sees the “Wall Street-Treasury Complex” as responsible for the IMF's approach, as well as a blind spot for rationalist approaches, which offer little insight into processes that shape preference formation “from within” international organizations (IOs). In a context where the Fund's member states permitted the staff considerable discretion and autonomy, I argue the staff's initial adoption of the norm of capital freedom was largely shaped by three internal processes: administrative recruitment, adaptation, and learning. But norm adoption did not mean the end of internal discussion, and a vigorous debate emerged between “gradualists” and supporters of the “big bang” over how the norm should be interpreted and applied. In this “battle of ideas,” I emphasize the critical role of internal entrepreneurship.

The Fiscal Implications of Climate Change

This paper reviews the fiscal implications of climate change, and the potential role of the Fund in addressing them. It stresses that: • The potential fiscal implications are immediate as well as lasting, and liable to affect—in differing forms and degree—all Fund members. • Climate change is a global externality problem, calling for some degree of international fiscal cooperation… • …and has features—an intertemporal mismatch between the (early) costs of action to address climate change and (later) benefits, pervasive uncertainties and irreversibilities (including risk of catastrophe), and sharp asymmetries in the effects on different countries—that raise difficult technical and ethical issues, and hinder policy coordination. • In addition to itself impacting the public finances, climate change calls for deploying fiscal instruments to mitigate its extent and adapt to its remaining effects.

Bridging community‐based health insurance and social protection for health care – a step in the direction of universal coverage?

keywords health care, community-based health insurance, social protection, universal coverageAccess to affordable and effective health care is a majorproblem in low and middle income countries (LMIC) andout-of-pocket expenditure for health care a major cause ofimpoverishment (Meessen et al. 2003; Frenk et al. 2006;McIntyre et al. 2006; Van Doorslaer et al. 2006). Oneway to facilitate access and overcome catastrophic expen-diture is through a health insurance mechanism, wherebyrisks are shared and financial inputs pooled by way ofcontributions from salaries or taxation (Carrin et al.2005). In European history, social health insurance (SHI)initially covered salaried workers and their families. Theself-employed, unemployed and destitute were onlycovered at a later stage (Ba¨rnighausen & Sauerborn 2002).In LMIC today, the majority of people are either self-employed or work in the informal sector, which makesexpansion of formal health insurance, if any, much moredifficult. Taxation systems are generally insufficientlydeveloped and do not allow for adequate revenue collec-tion to ensure universal coverage (Carrin et al. 2005).One response to the difficulty of providing insurancecoverage for people in the informal sector is the develop-ment of community-based health insurance (CBHI). Suchan arrangement implies that the community plays animportant role in mobilizing, pooling, allocating, manag-ing and/or supervising health-care resources (Jakab K Jakab & Krishnan 2001;van Ginneken 2002; Carrin et al. 2005). CBHI schemesattempt to tap willingness and ability to pay for health careand try to build local risk-sharing arrangements based onsolidarity which requires time to mature. In practice,however, most CBHI schemes are small. A review of 258CBHI schemes found that 50% had less than 500 members[International Labour Organisation (ILO) 2002], whichundermines the CBHI’s potential (Criel & Waelkens 2003;Carrin et al. 2005).Small-scheme federations or networks can be establishedto increase membership and improve financial leverage ofCBHI (Waelkens & Criel 2004). Support organizations canbe set up to provide management assistance at the outset;scheme management can be subcontracted to an umbrellaorganization or schemes may even merge (Carrin et al.2005). Alternatively, a scheme with a larger membershipmay be started (Carrin et al. 2005), although this may onlybe possible if premiums are subsidized. In this respect,Bennett (2004) suggests that government subsidies toschemes should target the poor, more specifically thoseunabletopayapremium,toenableequitableaccesstohealthservices. The situation of CBHI in sub-Saharan Africa leadsto a similar analysis (Ndiaye et al. 2007): CBHI is not anoption for the poorest, and someone else therefore needs topay the insurance premium for them – in full or in part.Hence, the need for subsidies to cover the poorest house-holds–whileatthesametimeexercisinggreatcautionnottoundermine and jeopardize local solidarity dynamics andwillingness to pay by other than the poorest households.Rationale for bridging CBHI and social protectionprogrammes (SPP) for health careThe World Bank defines SPP as public interventions that:(i) assist households and communities to better manage