The Demand for Advice in Defined Contribution Plans


20 September 2014

This paper examines the results of a comprehensive study of the advice which participants in Australian defined contribution (DC) saving schemes have sought from their plan sponsors (agents) over time. Whereas previous research on this topic has focused upon fee-for-service advisers, our focus is on advice provided by the agents of DC plan sponsors that have no direct interest in the outcome of calls or web-based inquiries. Our study of 430,000 DC fund members over the 2004−13 period indicates that the predictors of intra-fund advice-seeking are gender (female rather than male), age (older than younger), account balance (larger than smaller), and experience-related (longer rather than shorter).*

In many OECD countries, DC pension schemes have come to dominate the provision of supplementary pension benefits. The uncertainties involved in funding defined benefits (DB) have become so significant that, wherever possible, private sector employers have retreated from sponsorship of these schemes.

Whereas the uncertainties associated with DB schemes were the responsibility of employers, employees now carry the risks associated with DC schemes. However, many people do not have the requisite financial knowledge and skills to make informed saving decisions, and are often ill-equipped to function effectively in the context of market risk and uncertainty. The role of third-party advisers can also be quite problematic, particularly when their incentives are inconsistent with the interests of those seeking advice.

Government-led information services have done little to improve the lot of the average DC plan participant. As a result, governments have suggested pension schemes (DB and DC) take a more active role in providing information and advice relevant to their plan participants. However, little is known about who seeks advice, about what issues, when, in what contexts, and to what affect, and if the adviser is genuinely interested in the outcome.


Overall, we find the predictors of advice-seeking are gender (female rather than male), age (older than younger), account balance (larger than smaller), and experience-related (longer rather than shorter). Note, the significance of the gender effect – women, more than men, tend to seek advice although this effect is somewhat less evident once the web-based facility was introduced (the web-facility attracts younger male advice-seekers more than the call facility).

Perhaps unlike many other types of decisions, it is reasonable to assume that decision making about retirement planning is ‘continuous’ i.e. it can be made every day of the year up until retirement. Likewise, it is reasonable to assume that the information available in making this type of decision is, in the Australian case at least, ‘ubiquitous’. However, most people, most of the time, do not make a pension 'decision' and do not seek advice.

The evidence indicates that a minority sought advice over the 2004−13 period and, of those who sought advice, a majority did this just once during their time in the Mercer Super Trust. Furthermore, those who sought advice had an immediate and substantial stake in the performance and structure of the superannuation system (confirming the salience hypothesis).

While we have come to expect that most DC plan members are 'passive' participants, our results are surprising in that those who sought advice during the window containing the implementation of changes in the federal government's superannuation tax regime (June−July 2007) did so only as the window closed. In effect, they waited until the last moment to seek advice. Why?

One possible explanation is that despite our assumptions about retirement saving being a ‘continuous’ decision in a world of ubiquitous information, for most participants, these types of decisions may be treated as 'discrete' i.e. they only pay attention when an issue is so significant that it ‘activates’ attention. This is supported by recent research in cognitive science suggesting that where an issue would seem to demand effort, those who put in the effort appear to be those for whom the issue is most salient.

While our results are simply a first step in better understanding the patterns of participant-initiated advice-seeking, these results suggest that mobilising participants may be more successful around specific topics rather than the (more) abstract notion that retirement planning and saving for the future is relevant to all participants, whatever their circumstances.

*This paper has benefited from the comments and advice of colleagues including Christine Brown, Carly Moulang, Paul Lajbcygier, Maria Strydom, John Vaz, Huu Dong and Dane Rook. The project has been made possible by the support provided by Mercer (Australia).