How about taking a steer from Australia?
Australia introduced compulsory workplace retirement saving, the ‘Superannuation Guarantee’ (“Super”), in 1992. The resulting Super system is largely Defined Contribution in nature and has many parallels with Automatic Enrolment in the UK. Consequently, the Super system might be a source of empirical insights that are relevant to the UK, based on over 20 years’ experience covering millions of savers and trillions of Dollars saved.
The objectives of the Super system have evolved over time, as the system has matured and grown. The Australian Government recently sponsored a wide-ranging review by a committee independent of the Government into Australia’s financial system, the ‘Financial System Inquiry’ (“FSI”), including the Super system. The Government agreed to develop and introduce legislation to enshrine the objective of the Super system in response to the findings of the FSI. The legislated objective is intended to provide a basis for making and evaluating future decisions related to the Super system.
The proposed primary objective of the Super system is “to provide income in retirement to substitute or supplement the Age Pension” (the Age Pension being the pension paid by the Australian Government to those aged over 65, subject to various reductions). This objective is now subject to consultation. Australia seems to be moving more explicitly towards ensuring that its savers are providing for an income in later life at a time when the UK has introduced freedom and choice from age 55 and is incentivising first-home purchases.
The proposed primary objective is supplemented by a number of subsidiary objectives. One of these supporting factors is the intent to relieve fiscal pressure on the Government from the retirement income system. The Government recognises that the more that is privately saved, the less the burden on the public purse. However, the targeted tax concessions that incentivise private saving do have a limit in order to support the fiscal sustainability of the system. The limit does not seem to have been identified as yet. However, a degree of tax relief is not being withdrawn before the cap has been determined either – unlike in the UK.
The intent of increasing national saving was a key part of the original Super objectives in the early 1990s. However, as the saving culture in Australia has taken a firmer hold, so the drive to emphasise the need to save seems to have reduced. By contrast, the savings rate in the UK continues to fall so continued promotion of the need to save is likely for some time.
The UK has enjoyed a long-standing rivalry with Australia over time, particularly in sport. However, Australian experience and methods have been adopted where these have been felt to improve on home-grown alternatives. Currently, the English cricket and rugby teams have Australian coaches……and their best results of recent times. Why not apply this open-mindedness to learning from the Australians when it comes to providing for retirement too?
Peter Hall Finance & Accounting Ltd
9yYou forgot that the English Rugby LEAGUE side is also coached by an Aussie. How much can a koala bear ?.
Passionate about helping Australians improve their lives in retirement. #Superannuation is #NotSuperYet.
9yI always find it interesting when UK or US experts suggest looking at the Australian retirement system for inspiration. Our accumulation phase is worth learning from. On the back of compulsory contributions we have accumulated $2 trillion dollars in pension (aka superannuation) funds which is about the same as Australia's GDP. One of the unintended consequences of compulsory system is that the trustees of our superannuation funds are tricked into thinking they are doing a great job by members because their funds keep on growing. Australia can offer no guidance for the decumulation phase. Lifetime annuities are almost unknown and all but a very small number of retirees use account based pensions or simply take their benefits as a lump sum. There are very funds that provide products to protect retirees or near-retirees from sequencing risk, longevity risk, or - for that matter - any retirement related risks. Only about 25% of Australians are self sufficient in retirement. The rest will access full or part Government pensions, which are unfunded. Projections show that this percentage is unlikely to change though the proportion on full pension is expected to reduce. The Australian Government and the Australian Superannuation industry seems more interested in arguing about issues such as fairness of tax concessions and the merit of independent trustee directors rather than developing products and services to help retirees. For those interested, here is are links to a couple of reports Deloitte produced a couple of years ago on the challenges facing the Australian Superannuation System. http://bit.ly/DoS2015 http://bit.ly/superadequacy
Managing Director - TOR Financial Consulting Limited Operations Manager - AvTOR Freeman of the City of London Fellow of the Royal Society of the Arts Multi Engjne Single Engine Piston Pilot Night Rating & IMC
9yCurrently in Australia - The Federal Government is looking closely at the pension freedom experiences of the U.K. . Compulsory annuitisation, while attractive for some has the ideological rub and challenge for Commonwealth Treasury. The voluntary contributions, to match compulsion of on average of 3% is interesting but the explosion in Self managed super and expensive tax subsidies is a concern, especially around property and domestic equities. Safe to suggest that the Hon. Paul Keating, former PM's vision of extending coverage and higher contributions has generated a £200,000 median balance. The argument of having elaborate communications programmes is faltering as trustees seek to make their members not CIOs but having access to better default and retirement income options. The lucky country may see the industry funds sector looking to the Netherlands for a collective retirement income solution. Collective annuity purchasing as seen by United Technologies in the US could develop. Sustained low interest rates and forex worries on the exporter side will continue to shape the macroeconomic worries of Australian superannuation and its sustainability. Mining stock dominance of domestic stock market and concessional taxing super at TTE are concerns . Politically it is accepted that 9.5% will be the hold position for a Liberal Coalition Government , assuming an electoral win this year. Soft compulsion UK and hard compulsion Australia/Switzerland and Chile . Society's view to trust the individual to do the right thing in terms of retirement saving. Tricky politically .
Non-exec, Board advisor and Exec coach
9yThe pensions system is now confused, to say the least. Neither the Uk nor the Australian governments have solved the problem. Talk to anyone who will rely on defined contribution and ask them to explain their retirement plans and you will find they all struggle. Anyone earning over £40k has to work out where to put the rest of their money. That is simply why buy-to-let has taken off - people can see their investment. This is a major unseen issue.
Entrepreneur, investor, advisor, former financial services executive
9yRalph and Alex, A well written article and a well written comment. I recall attending a pensions conference last year where I was barked at when I raised Australia as an example for the UK. Pity the UK suffers from a form of "not invented here" disease. I hope HM Treasury are reading. I know they care. - Vinay