Principle 8

Perhaps unsurprisingly, people like to maintain control over their decisions and actions.  For example, when playing a game of chance, they like to roll the dice themselves, as if they can roll better than anyone else.  Similarly, they tend to prefer the appearance of Ikea furniture they have constructed themselves to the same furniture that someone else constructed, called the IKEA effect.

Similar inclinations pervade workplaces.  For example, leaders are often reluctant to delegate tasks to other people, such as inexperienced staff.  The problem, however, is that

• leaders tend to underestimate the capacity of their staff to change and to develop over time,
• their teams, therefore, do not develop skills and capabilities as rapidly or as extensively as do their rivals,
• in contrast, when leaders empower their staff, these teams tend to trust one another, perform effectively, and demonstrate great innovation. 

Workplaces thrive not only when leaders delegate tasks but also when leaders relinquish equity.  For example

• since the advent of employee ownership share plans, studies reveal that companies that offer employees shares in the company tend to attract more value to their shareholders,
• indeed, Ownership Works, an organisation that faciltates these schemes, has collated many case studies of companies in which financial performance escalated after these plans were introduced.

Rather than distributing money to empower people, organisations and governments can also distribute time.   For example, in many nations, individuals need to record their attempts to seek work or to develop their capabilities to receive unemployment benefits.  Yet, as considerable evidence shows, these activities consume significant time and actually diminish the likelihood that individuals will secure work or develop a small business. 

This mindset, in which leaders strive to relinquish some control now to enhance performance later, can significantly enhance the efficiency of organisations and sectors.  One telling illustration revolves around multi-organisation schools:

• Although the precise configuration varies across nations, in general, a multi-organisation school is a formal network, usually comprising between 100 and 100 schools.
• To assist each principal, a single executive team govern the entire network of schools.
• The network of schools can thus share resources, management practices, and many other procedures.
• These formalised networks are especially effective when the schools share a philosophy but are located in diverse regions.

To encourage individuals to relinquish some of their power now, ultimately to attract support or resources later, governments may need to consider a range of initiatives.  One example revolves around annuities.  Many commentators suggest, and many studies demonstrate, that lifetime annuities may improve the lives of retirees (for a review, see Coates et al., 2025).  The rationale is that

• a funding body—such as an insurance company or government agency—pools the funds of many retirees,
• depending on the amount of money that a person invests in this scheme, the individual receives a guaranteed income, such as $50 000 every year, regardless of how long they live.

Instead of annuities, in Australia, over 80% of retirees who have accrued superannuation utilise account-based pensions in which they withdraw regular amounts of money from their superannuation and can also withdraw larger sums when needed.  Relative to annuities, however, the drawback of these account-based pensions is that

• individuals tend to withdraw a limited amount of money, usually the prescribed minimum, because they are concerned about various risks, such as living significantly longer than expected, rises in inflation, or collapses in the equity market,
• consequently, most retirees utilise only a portion of their superannuation, diminishing their living standards,
• these uncertainties also provoke stress, anxiety, and uncertainty,
• because of tax regulations—such as the regulation that all income from account-based pensions but only 60% of income from annuities is included in the Age Pension means test—this approach diminishes the funds individuals may receive from a pension.

Annuities address these problems.  The only drawback of annuities is that

• individuals cannot as readily withdraw large sums when needed or shift to another provider, diminishing flexibility,
• individuals often do not understand annuities and, therefore, may be suspicious of these offers,
• individuals may be concerned the provider may collapse (e.g., Beshears et al., 2014).

To overcome these concerns, the Grattan Institute, in their report entitled Simpler Super, recommend that

• whenever possible, the government should recommend that retirees utilise 80% of any of their superannuation funds that exceed $250 000 to purchase annuities,
• however, the government should indicate that other alternatives, such as annuity incomes that depend on investments or the mortality of other members, could be considered too,
• rather than depend on insurance companies, few of which now offer lifetime annuities in Australia, the government should fund these annuities, but an independent Commonwealth agency should manage these annuities.

As research implies, when the government funds annuities, retirees are more inclined to embrace this option.  That is, they are more willing to relinquish some control or power over their funds to generate a more consistent and stable return over their lifetime.    

Other relevant policies, such as the Retirement Income Covenant, have not encouraged annuities to a sufficient extent.  Financial advisors do not often recommend annuities, partly because they may forgo the fees they would otherwise charge to manage the capital of retirees.