Risks associated with online choice in the absence of advice

The Federal Government and the Australian Taxation Office (ATO) have been warned against hastening too quickly towards implementing an online choice regime for superannuation in circumstances where consumers are generally ill-informed and may be denied access to appropriate advice.

The warning has come from the Association of Superannuation Funds of Australia (ASFA) which has used a submission to the ATO’s consultation paper dealing with single touch payroll (STP) and Online choice of fund design to point to significant shortcomings in the proposed regime, not least ensuring people get the right information to make the right choices.

The ASFA submission has pointed to a number of unintended consequences which are likely to undermine outcomes.

“The potential unintended consequence of greatest concern from ASFA’s viewpoint is the risk that this process results in a reduction of member engagement potentially leading to sub optimal retirement or insurance benefit outcomes,” the ASFA submission said.

It said the ATO’s own usability testing had highlighted that “understanding and engagement with superannuation is currently low and that individuals are likely to refer back to employers and family members for guidance”.

“If the ATO process shortcuts these steps for individuals, as it is intended to do, opportunities will be missed to encourage individuals to properly assess existing superannuation accounts alongside new options that may be a greater benefit to them,” the ASFA submission said.

It said the ATO process in isolation also had the potential to undermine the efforts and positive outcomes to date from the MySuper regime.

“MySuper products by design and through more stringent prudential oversight are generally high quality, low cost, somewhat standardised products that individuals are allocated to if superannuation choice is not exercised,” the submission said. “This protects the disengaged and should be fostered. Similarly, these processes may have detrimental effects on innovation in new product development and prolong moves to a lower cost, higher quality, more competitive environment.”

It said that consumer and market impacts needed to be tested before online choice services were provided by either the ATO or employers for use.