Forget year-round sunshine and shrimps on the barbie. It’s the Australian pensions system that many in our industry have looked to with envy.
For the last 25 years, under the compulsory superannuation model, employers ‘Down Under’ have been forced to pay a significant contribution into a “super”, or retirement fund, for their workers. It now holds huge assets and is the largest defined contribution system in the world per capita.
In the UK, pensions savings have extended to millions more people in the last few years thanks to auto-enrolment, but as a nation we’re still a way behind Australia. As we move towards potential consolidation of master trusts as a result of The Pension Regulator’s (TPR) authorisation process and many single employer trusts are looking to move to a select group of larger master trusts, it’s worth asking what we can learn from Australia’s extra years of experience.
Watershed moment – big is beautiful
Master trust authorisation is at a critical point. Applications have been submitted to The Pensions Regulator and industry predictions suggest the result will be a small number of big players managing workplace pension schemes in the future.
The ultimate aim is for auto-enrolment to evolve into a more stable and effective system of retirement saving. So although we’re taking a different approach we’re heading in a similar “big is beautiful” direction to the multi-trillion dollar Australian pensions system where AUS $2 trillion of assets are managed by around 225 funds.
Play catch-up but don’t play with fire
We’re still a few steps behind so it’s a good opportunity to take stock. One thing is clear to me – we must learn useful lessons from Australia and avoid pitfalls. My colleague Gregg McClymont has previously analysed the issues and lessons around various scandals which hit the industry. Read his thoughts here.
I agree that the shocking headlines about greed and misconduct by banks and other commercial providers should serve as both a warning and an opportunity. At the heart of this is the question over proprietary/for-profit compared with not-for-profit – something I discussed with colleagues and financial advisers at a recent event we, The People’s Pension, organised.
To profit or not-for-profit?
In Australia, the numbers stack up in favour of not-for-profit funds which make up the top 10 performing pension funds across short and long time periods. Even before official enquiries were launched into banking and superannuation, people could see the long-term financial benefits of not-for-profit – or profit-for-member as they are often referred to in Australia.
The “profit-for-member” terminology resonates well for me, coming from an organisation which has a firm commitment to putting people ahead of profit. The People’s Pension has no shareholders to answer to so we can genuinely ensure that any profits are ploughed back into improving value and service for our customers. Our Charitable Trust also gives back to society and individuals as part of our mission. I’m proud of all this from a moral standpoint but I also believe it’s a good approach for the industry – and retirement planning – in the UK as a whole.
Where does this leave us?
At The People’s Pension we’re fortunate (as are our 4m members) as one of the largest master trust workplace pensions in the UK that we can provide stability and experience in the pensions landscape. We should build on the consolidation process of master trust authorisation and champion the value we can offer people through a long-term, “profit-for-member” approach to pensions.
Anyone focusing on chasing short-term returns or making bad decisions in the interests of sponsors rather than members should take heed of the Australian lessons. If we can all do that, then hopefully big really will be beautiful for British pensioners.