Soft compulsion still seen as the way forward

24 November 2009

Soft compulsion is still considered one of the best ways to bridge the gap in retirement savings, because many people lack the willpower and self control needed to carry out disciplined savings programs. Soft compulsion schemes appeal to those people who typically avoid financial decisions, as well as those who are comfortable making financial decisions and want to automate their superannuation arrangements.

Speaking at the Association of Superannuation Funds of Australia (ASFA) National Conference on 11 November 2009, the Hon Chris Pearce MP, Shadow Minister for Financial Services, Superannuation and Corporate Law discussed his solutions in ensuring that the majority of Australians will have enough savings to provide for themselves in retirement without having to call on the taxpayer for support.

The Hon Chris Pearce spoke of the best approach in enhancing this adequacy is instituting a system of soft compulsion which operates within the current super architecture.

Soft compulsion schemes encourage people to automatically increase their pre-or-post tax super contributions by chosen increments of one, up to say five per cent per annum.

In late 2006, Plum Financial Services (Plum) launched its innovative Escalator Program and was the first of its kind within Australia to assist members improve their retirement savings.

The Plum Escalator Program is a soft-compulsion contribution solution, enabling members to automatically increase their super contributions by chosen increments of one, two or three per cent per annum, up to an agreed maximum of 15 per cent per annum, inclusive of the Superannuation Guarantee.

The timing of the increase is set for a specific point in time in the future, usually to coincide with a salary review. That way members’ can feel good about making the decision to put more away for their retirement, yet it won’t have a noticeable impact on their income. The Escalator Program makes it simple for those people who procrastinate about taking action, because the decision they make today, doesn’t impact them until later.

To date, 23 of Plum’s 80 plus clients have introduced the Escalator program into their workplace. More impressive though, is that from these employers 63 per cent of employees have taken action to improve their superannuation adequacy.

“It’s a well known industry belief that the majority of Australians will not have adequate super savings to meet their retirement needs. This provides superannuation funds within the industry with the continuous challenge to educate their members and to encourage action,” according to Plum’s Head of Sales and Marketing, David Woodall.

“For many people the contribution caps restrict the ability to catch up in the later part of your career by making significant contributions prior to retirement. Soft compulsion can spread this funding requirement over a longer period.”

About Plum

Plum Financial Services Limited (Plum) provides integrated and innovative superannuation solutions to medium and large Australian organisations.

Plum has offices in Melbourne, Sydney and Brisbane and is a subsidiary of MLC Limited, one of the National Australia Group of companies. Plum also has a strategic alliance with the US-based Vanguard Group Inc. This relationship brings to Plum the knowledge and skills of the world's second largest mutual fund manager.

Plum was purpose-built for the era of member investment choice and from our beginnings we have challenged traditional ways of thinking about superannuation.

Plum's vision is about providing members with a meaningful education experience to help build their knowledge and understanding of superannuation so that they are empowered to manage their financial future.

Further information

For more information on Plum, photos or an interview with our Managing Director, Scott Hartley, please contact:

Georgina Slade – Corporate Marketing Manager
Work: 03 9222 4640
Mobile: 0438 565 774
georgina.slade@plum.com.au

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