Raconteur

Workplace Pensions special report 2018

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10 WORKPLACE PENSIONS Is Australia the 'super' provider? Pension provision in Australia surpasses current arrangements in the UK, so are there lessons to be learnt? T he UK's final salary or defined benefit pension sys- tem was once the envy of the world. However, that "gold- plated" pension scheme, which will provide the backbone of retirement income for the baby-boomer gener- ation, has had its day and the UK's claim to a first-class retirement sys- tem is no more. Britain now languishes 15th out of 30 in the Melbourne Mercer Global Pensions Index, a league table of developed nations' pension systems, which for some years Denmark, the Netherlands and Australia have led in a class of their own. Due to cultural similarities and the fact the pensions sys - tem was codified based on British law, comparisons are often drawn between the UK and Australia. Just how useful these comparisons are is moot. "There are two meas- ures to look at and they are contribu- tion rates and coverage levels," says David Harris, managing director at Tor Financial Consulting. "Everyone earning more than A$450 a month is captured by 'super' [superannua- tion] in Australia, while the low paid are excluded in the UK." Contribution rates have reached 9.5 per cent in Australia, though only paid by employers, with legisla- tion passed to increase this to 12 per cent by 2025. Although the UK's auto-enrol- ment (AE) has greatly improved cov- erage with more than nine million enrolled as of January 2018, contri- bution rates remain minimal. The UK government is aware this will not provide a meaningful income in retirement and plans are in place to increase contributions from both employers and employees. However, because the employee has to pay into the scheme and is not compelled to remain but can opt out periodically, Mr Harris believes the pace of increases will have a detri - mental effect on the AE project. "The promise of getting up to 8 per cent contributions in the UK has to be looked at in the context of what will happen afterwards to opt-out rates and perhaps, even, the economy as earnings are reduced," he says. "Australia has done this over the past 25 years and so people have had a long time to get used to the idea." Australian super funds have done a good job at investing their mem- bers' money. The sheer size of the market – Australian super now tops A$2.3 trillion – has enabled invest- ment managers to innovate in areas such as infrastructure, which can generate attractive income streams over 20 or more years. Many super funds now invest heav- ily in infrastructure, even in the UK, with Leeds Bradford and Manchester airports, Thames Water and Angel Trains partially or wholly owned by Australian pension fund money. The reason it can do this is simply because of the scale of the Australian system, says Paul Leandro, a partner at Barnett Waddingham. "One char- acteristic of the Australian environ- ment is size and very large-scale industry funds can effortlessly bring in huge amounts of assets through compulsory contributions," says Mr Leandro. It's not all about size, but also a bit of luck as, unlike the rest of the world, Australia has not expe- rienced a recession for 26 years, longer than super has been in place. This, says Mr Harris, has helped the system bed in and pro- vided public confidence. That confidence has influenced Australia's greatest achievement which has been engagement. Super is largely understood and supported by savers, and with good reason, says Dianne Day, who worked on super in Australia and is now cli- ent director at Independent Trustee Services in the UK. "They are motivated by a funda- mental driver that as the population ages, the likelihood of them being able to draw a state pension and rely on public health services is reduc- ing," she says. "Australians under- stand that they must take personal responsibility for longevity risk, even in a country that is compara- tively young." AUSTRALIA georgeclerk / Getty Images PÁDRAIG FLOYD

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