Metachoice: the complicated relationship between choice and superannuation

Exploring the complicated relationship the super sector has with choice.

By Luke Barrett, Partner & Head of Superannuation, Gilbert + Tobin*

Superannuation funds endeavour to get more members to engage with their superannuation, but ironically the industry wrestles with the complications that can arise when they do.

Choice can lead to complications. This is not to say that choice itself is a problem. The system values choice or, at least, the opportunity for choice. For years, members have been reminded that their superannuation is theirs but just not yet. Every major fund offers a choice of investment options. Members who have default insurance can choose to opt out, and those who don't can choose to opt in. Members have choice of fund. Stapling trumps default fund status, but choice trumps stapling. Members have a choice as to who should receive their death benefit. They typically even have a choice whether their choice should be binding. Australia may be a constitutional monarchy but, in superannuation, the consumer is sovereign.

With so many choices, you would be forgiven for wondering what could possibly go wrong. The answer is choice. Choice can go wrong. The why and the how require going beyond the choice itself and into the realm of metachoice.

Introducing the concept of metachoice
Metachoice is used here to refer to the universe of factors that surround a choice and determine whether the choice is a good one: whether the right options were made available, whether the choice was freely and properly made, and whether anyone should have intervened before the choice took effect.

The past year has highlighted how a system based on choice can result in sub-optimal choices being made by members, leading to consequences that the system may not be comfortable with members bearing. Trustees must act in the best interests of members, but the system may not be ready for members to be accountable for acting in their own best interests all of the time.

When one superannuation fund lost a billion dollars on a single investment that the trustee chose, that only made the news for one day; but the system baulks if members across multiple funds lose a billion dollars across multiple investments that the members chose, with daily news coverage and litigation pending. Superficially this may seem counterintuitive, but diversification and concentration are the reasons why.

Decisions to include an investment in a diversified portfolio constructed with care, skill and diligence can be explained and defended, even if in hindsight the investment does not perform well. 

In the first case, the investment exposure would have been spread across multiple investment options and would only have represented a sliver of each member's account balance invested in those options. The impact was spread and no one member's retirement savings were significantly impacted.

In the second case, though the loss arose from two investments and was spread across multiple funds, there was nevertheless a disproportionately devastating and tragic impact on each impacted member's retirement savings.

This is why losing a billion dollars on an investment chosen by the trustee can be less controversial than losing a billion dollars on investments chosen by members. The alleged conduct within the investment vehicles which allegedly contributed to the losses is being investigated and the nature of those allegations have contributed to the desire to find a remedy for the impacted individuals who have lost their retirement savings.

How metachoice becomes legal risk
Every trustee would be right to reflect on the metachoice risk: the risk that they may be held accountable for choices made by others and not by them. In circumstances where members have made their own choices, the regulators clearly believe that others can be held accountable for the negative repercussions of those choices. The grounds for accountability fall into three categories:

1. someone made an inappropriate choice available in the first place
2. someone inappropriately influenced the choice, or 
3. someone inappropriately allowed an inappropriately influenced choice to be implemented. 

These three categories - availability, influence and intervention - provide a useful framework for understanding how metachoice risk is emerging across different areas of the superannuation system.

The best financial interests duty and other legal principles - such as the licence condition requiring licensees to carry on their business efficiently, honestly and fairly - can potentially be deployed to make trustees accountable for metachoice or to provide a safety net for members or both.

The first category - availability - is playing out in the scrutiny over how trustees select the investments or investment options that are put forward for their members to choose, and in the renewed focus on the degree of investment concentration that members are allowed to choose within their account.

The second category - influence - can be seen in the examination of the conduct of financial advisers and research houses involved in endorsing investments. ASIC's focus on scam prevention, cold calling and the use of lead generators are further examples of the regulator homing in on factors that could inappropriately influence choices by members.

The third category - intervention - is evident in the suggestion that trustees should proactively be on the lookout for indications that their members are making choices that may have been inappropriately influenced, and that they should have guardrails in place before acting on those choices. Consider, for example, choices by members to roll out of their current fund into a self-managed superannuation fund or into a higher-fee or inferior-insurance environment; or choices by members to change the bank account into which their benefits are paid, or to allow third parties to operate their superannuation account. ASIC expects super funds to monitor for indications of high-risk superannuation switching conduct.

In each case, a trustee could conceivably be challenged for enabling or acting on the member's choice without appropriate safeguards. This is not to say that any of these challenges would necessarily be justified, but rather that the risk of challenge exists.

Other examples of metachoice risk
Metachoice risk does not just arise in the context of investment choice. When stapling was introduced, the legislation was clear that choice trumps stapling. However, the system has a complicated relationship with choice and there are conflicting views whether digital platforms for onboarding new employees are an appropriate mechanism for getting employees to choose a fund when they start new employment. It turns out that the system is not necessarily ready for members to choose a fund which isn't their stapled fund, unless the choices offered are curated in accordance with legislation.

If the scam prevention legislation is extended to superannuation funds, there would be specific statutory obligations on superannuation funds to manage metachoice risk by having strategies in place to prevent scams before they happen, to detect scams if they happen, and to disrupt scams while they are in the process of happening. 

Many scams, as opposed to fraud, take place because a financial institution acted on a choice made by their customer. The overwhelming majority of money wrongly leaving superannuation accounts is attributable to illegal early access by the members themselves rather than to external scams. This is a sobering reminder of the risk that the chooser brings to the choice. 

Conclusion
Australia’s superannuation system has a fondness for choice that falls short of unconditional love. Choice is a positive attribute of the system, but only when the available choices are appropriate, the choice is made free from inappropriate influences and there are mechanisms for saving members from choices which fall short of those criteria.

The prudent trustee has no choice but to consider metachoice.

*Gilbert + Tobin are the supporting sponsor of the 2026 Chant West Super Fund Awards