Australia

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In Australia, superannuation is a long-term savings and investment vehicle that, like the 401(k) in the U.S., provides tax-advantaged retirement benefits for individuals. Since summer 2005, a overwhelming majority of Australian workers have been able to choose an investment fund through superannuation. (Prior to 2005, fund selection was largely made by a trustee of some kind.) With more than 200 fund options to choose from, investors have been overwhelmed. (Just think how overwhelmed they would have been if they had lived in Sweden where a privatized version of social security yielded almost 800 fund options!) In a new report on the policy, the Australia Institute levels some harsh criticism.

The fact that fewer than ten per cent of workers actively choose a fund should not come as a surprise. Indeed, as little as four per cent of workers switch super funds each year and around half of this is ‘passive’ choice due to job change or fund closure. Because participation is compulsory, a great many fund members, and particularly those a long way from retirement, do not take a keen interest in their super. Being automatically enrolled in a retirement savings system is not conducive to active consumer decision-making.

Choice of Fund has also been largely unsuccessful in lowering the number of multiple accounts, one of the most serious problems for superannuation policy-makers. In fact, the number of accounts per employee has actually increased, suggesting that choice has not ‘empowered’ consumers to take even the most basic action to improve their superannuation arrangements. Three years on, the failure to promote consumer-centred competition has resulted in considerable waste across the super system. Average fees levied by fund managers have not fallen, remaining at around 1.25 per cent of funds under management (equating to around one per cent of GDP), and significant fee and performance variations persist between not-for-profit funds and for-profit (retail) funds. Moreover, it is estimated that Australians pay around $2.4 billion a year in commissions on superannuation assets, including $862 million on their compulsory superannuation contributions. Financial outcomes for workers can vary considerably depending on the fund that their employer nominates as the default fund.

Read the full paper for six design principles for a default rule, including a somewhat controversial argument that default options should “focus especially on the needs of people who are a long way from retirement, or whose accumulated benefits are relatively modest,” because of the poor decisions that people make in situations where the effects are not felt until well into the future. Because of the complexity of investment decisions, and the number of amatuers among all age groups, the default rule should be issue No. 1 for a choice architect regardless of whether the employee is 23 or 63.

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Residents of Queensland, Australia, have lived a decade of drought. Shriveled vegetables and brown lawns led to mandates restrictions on outdoor water usage, but water remained scare. The reservoirs serving Australia’s most populous cities dropped to just above 15 percent of normal. The country’s water authority needed to change its citizens’ behaviors. Water officials set a target of reducing daily per person consumption from 80 gallons to 37. And they met it, says Patrick Whyte. How? With lots and lots of nudges.

Officials developed a relatively cheap social marketing campaign, with the aim of getting people to think about individual water use. Ads promoted simple things, such as taking four-minute showers and turning off the tap while brushing your teeth. Crucially, the program set targets, and for the first time put gallon figures on the amount of water used in car washing, toilet flushing and other activities.

Before the drought and Target 140, as the program was called, my wife, two sons (ages 8 and 11) and I routinely wasted water. Our faucets dripped, our sprinklers ran, we washed our cars and hosed our driveway without a second thought.

Now the radio was awash with talk of water and how to conserve it. Reservoir levels became the subject of everyday conversation. Just two weeks into Target 140, average daily per-person use dropped from 80 to 32 gallons. The water saved was equivalent to bringing a desalination plant online — overnight.

In the United States, people use an average of between 100 to 150 gallons a day, depending on whose statistics you use, so you’d have a little more cutting to do. But it was surprisingly easy. At my house, water-saving fever caught on quickly. We made sure to only do full loads of dish and clothes washing, we bought a four-minute shower timer, and we used a $15 government-funded, one-off plumbing service to fix leaking faucets and install water-saving shower heads. We took advantage of generous government rebates to install rainwater tanks and gray-water systems.

It was discouraging to watch the garden die and our green lawn turn to dust. But then so did everybody else’s. In fact, healthy gardens raised eyebrows and suspicions. We tracked our progress in our water bill, which displayed household usage on a bar graph, along with our suburb’s average and the overall city average.

There were some isolated neighborhood tensions and even the odd case of tank theft, but collectively, residents saved about 148 billion gallons of water under Target 140, which ran through July. The typical household saved about 190,000 gallons.

Fifteen months into the program, we got unexpected rains that took the reservoirs to the required 40% level, and the target was adjusted up to 45 gallons a person a day, where it remains. But longer-term behavioral change seems to have occurred, and daily use has stabilized at 38 gallons a person.

Hat tip: Rory Sutherland

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