People misreading risk in super product disclosures may lose more than they think
Monday, 22 February 2016
New research from the UNSW Business School has indicated that many people may be misreading information from their superannuation fund
Professor Andreas Ortmann
says “using a simplified design we have demonstrated how understanding of super choices can be improved. Our findings suggest that the process of how to test well intentioned innovations of this kind is in need of a rethink. Focus groups and in-depth interviews may just not be good enough.”
Professor Ortmann conducted research with his colleagues Professor Hazel Bateman
, Senior Lecturer Loretti Dobrescu
, Professor Susan Thorp, and Professor Ben Newell.
The researchers looked at a key feature of MySuper, a simplified dashboard using a standardised structure that radically shortens product disclosure statements.
However they found that the recommended information items on MySuper dashboards might not be effective as hoped. This turns out also to be true for mandatory short-form product disclosure statements.
“Many plan members do not understand key items such investment risk, although the dashboard template was designed for ordinary people to use,” he says. “This may be due to both insufficient financial literacy and the complexity of the dashboard itself.”
The researchers found that information contained in such disclosures might not be used in the manner intended by the regulator.
Professor Ortmann says “Simply speaking, it was the regulator’s intention to focus superannuation participants on matching risk-adjusted returns to their own risk profile. But one of our key findings is that most of our subjects do not make their decisions in this manner.”
Associate Professor, Associate Investigator ARC Centre of Excellence in Population Ageing Research (CEPAR)
School of Economics