More Money to Roll in to Australian Supers

(May 20, 2013) - Most Australian employers have not yet decided how to fund the rising mandatory retirement contributions for their employees, according Aon Hewitt. 

Under current law, businesses must pay a minimum 9% of employees' earnings into a superannuation fund. As of July 1, 2013, that portion will rise to 9.25%. By 2019, employers will be on the hook for 12%. 

More than half of employers did not have a game plan for the funding increases as of an October 2012 survey by Aon Hewitt.

More than a quarter of businesses (29%) told Aon Hewitt that they already contribute more than the required 9% in order to set themselves apart from competing employers.

It's not just those with corner offices who were receiving padded retirement accounts. Employers reported contributing more than 9% for roughly the same portions of executives (29%), management (28%), and general staff (28%).

However, just 11% planned to continue topping up the minimum savings rate after it rises.

The report suggests a number of alternative methods organizations might use to enhance benefits, beyond added retirement savings. These include subsidizing life and/or disability insurance, reimbursing administration fees, offering access to financial advisors, and increasing the number of investment options available.

A recent academic paper might dissuade employers and superannuation schemes from the last option. Mercer Bullard, a securities law specialist and University of Mississippi professor, reviewed an array of published research on the efficacy of defined contribution (DC) plan structures. He found substantial evidence that, for American plans at least, retirement outcomes worsen as the number of investment options rises. Faced with a large 401(k) menu, people tend to chose very conservative investment strategies or don't participate at all.    

Aon Hewitt, a retirement consultancy and asset manager which runs an Australian operation out of Sydney, collected data from 161 organizations to produce its latest superannuation report. The businesses surveyed include such giants as Rio Tinto, Microsoft, McMillan Shakespeare, Suncorp, Raytheon Australia, and MetLife Insurance.

Related Profile:  John Pearce, CIO of Unisuper