NU Online News Service, April 10, 2003, 4:46 p.m. EDT – European countries that have used voluntary individual accounts to reform their social security pension systems have found that worker education is critical, according to a new report from the U.S. General Accounting Office.

But the other countries have run up against the same tension between “financial education” and “financial advice” that has slowed U.S. Social Security reform efforts, writes Barbara Bovbjerg, the GAO director who led the team that produced the report.

The GAO researchers found that many employers in the United Kingdom, Germany and the Czech Republic, the three countries studied, avoid providing financial education for fear that the educational efforts will be construed as efforts to give advice.

“Providers of advice can be held responsible for the outcomes of decisions based on that advice,” Bovbjerg writes.

U.S. employers may feel they are particularly vulnerable because of the litigious nature of U.S. society, but in Germany, for example, employers know that they can be held liable if they provide employees with bad information, Bovbjerg writes.

In the United Kingdom, “employers are allowed to provide individuals with education, but not advice,” Bovbjerg writes. “However, employers are wary of providing education, fearing it will be misinterpreted as advice.”

The United Kingdom has tried to help fill the information vacuum by encouraging schools to offer personal finance classes and publishing step-by-step flowcharts, or “decision trees,” on its Financial Services Agency Web site.

The decision trees can help with basic questions, but they are too complicated for many workers, and the trees themselves recommend that workers who need more assistance talk to financial advisors, Bovbjerg observes.

The experts the GAO interviewed emphasized that some workers will need far more help with financial planning than others.

The experts cited a U.K. survey that found that 60% of respondents “thought about financial matters when it was absolutely necessary” and that 10% of respondents “didn’t think about financial matters at all.”

“Investor education is especially important for individuals who are unfamiliar with making investment choices,” Bovbjerg concludes.

The report includes detailed descriptions of voluntary individual account programs in the United Kingdom, Germany and the Czech Republic.

The text of the GAO report is available at http://www.gao.gov/cgi-bin/getrpt?GAO-03-309