A combination of psychology and economics theory could help Australians overcome their reluctance to save for their financial futures, under a new program from Plum Financial Services (Plum).
The financial services company has launched the Escalator Program, aimed at making retirement saving easy for those who typically shy away from financial decisions.
According to the company, the program aims to do this “by automatically increasing [workers’] super contributions in small steps, to coincide with annual pay reviews, up to a maximum of 15 per cent including the superannuation guarantee”.
“The 9 per cent superannuation guarantee is not going to be enough to help many people achieve a financially secure retirement,” Plum managing director Mike Fitzsimons said.
“To achieve their retirement goals, these people quite simply need to save more.”
The program is based on behavioural finance theories pioneered in the US by Professors Shlomo Benartzi from UCLA and Richard Thaler from the University of Chicago.
Under the program, participating members only have to choose the level of their annual contribution increase — 1, 2 or 3 per cent — and whether these should come from pre or post-tax income.
Employers set the date of the first contribution increase for the future, ideally at the employees’ next pay review, after which the program runs automatically until the member opts out of the program or leaves the fund.
According to Fitzsimons, the program hopes to address issues that prevent people from making financial decisions.
For example, many people prefer to take action in the future rather than immediately and, if given too many choices, are more likely to procrastinate.
