Employee Choice Arrangement: over 40% eyed a switch; tax breaks seen as key

This article is a rewrite of a report from August 2012.

Era analysis: The original was only a digest of a Towers Watson survey’s highlights: ahead of the November 2012 Employee Choice Arrangement, over 40% of employees said they would consider switching trustees, yet understood little about the scheme. The survey firm’s prescription was tax incentives — an idea that only materialised years later as tax-deductible voluntary contributions.

The May 2012 survey covered 200 employers and 1,000 employees:

Why the intent-action gap?

Desire outran understanding. More than four in ten wanted to switch, yet nearly 70% could not say which portion was transferable — exactly why the MPFA had to step up publicity before launch. Many assumed the whole account (including employer contributions) could move; in fact only the employee portion qualified.

Why did tax incentives matter?

Fewer than 20% of employees made voluntary contributions then, and most would not raise contributions amid economic uncertainty. The survey firm urged tax breaks to lift voluntary saving. In hindsight the direction was right — tax incentives for voluntary contributions eventually became a key policy lever for encouraging bigger retirement savings.