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The future of UK pensions is poised for transformation, inspired by the comprehensive Australian superannuation system and ‘pot for life’ model. This article delves into key aspects and lessons from Australia’s system, informed by Link Group’s extensive experience in managing over 40% of Australian member accounts. We explore how the UK might adapt these insights to enhance its pension landscape.
We must start by looking at the Superannuation system and unpick the fundamental changes that have resulted in a significant uplift to member outcomes.
Key legislative changes
The 2018 Australian Productivity Commission Report surveyed 4,600 members, 200 funds and 90 CEOs and made 31 recommendations, focusing on efficiency and competitiveness. Noteworthy reforms include the consolidation of superannuation funds and the ‘stapling’ of member accounts to individuals as they change jobs, effectively tackling the issue of multiple, fragmented pension pots. These measures, alongside strict performance benchmarking, are credited with saving around $3.8 billion annually, largely by reducing fees and consolidating approximately 10 million “unintended” multiple accounts.
Lessons for the UK
Australia and the UK have shared goals of providing financial security and stability. We have the opportunity to apply impactful changes to address the multiple pots challenge, simplify processes to reduce costs and enable choice, underpinned by a robust (and clear) value for money framework.
A key lesson from Australia is the benefit of having a unified regulatory framework, in contrast to the dual regulator approach in the UK. There’s a strong case to be made for a single regulator enabling the UK to foster a regulatory environment that promotes innovation, competition, and member protection, with the member at the heart of the system.
Another important differentiator is the integration of the pensions system with the Australian Tax Office (ATO), the Australian equivalent of HMRC, providing superannuation fund members with the information they
need to track their pension entitlements and enabling the interaction between ceding and receiving providers. The role of correct and transparent data and integrated systems would be a key factor.
Contrary to several opinions recently expressed in the UK market about the added complexity of pot for life, a system with a clearing house operating between employer and provider reduces complexity. It has the added benefit of enabling employer payroll functions to send their data and contributions to a single destination using a single set of processes, simplifying the experience of member, employer, and provider.
Member views
Feedback from UK pension members underscores the demand for reforms that prioritize their needs and preferences. In Link Groups UK Consumer View 2023 research, involving 1,500 pension members, there was overwhelming support for consolidating pension accounts and enhancing transparency in performance benchmarking. Participants expressed a strong preference for a single, transferable workplace pension that would follow them through job changes.
There was strong support for consolidation and performance improvements, for example, i.e. more transparent benchmarking:
▪ 86% have two or more pensions they would like to consolidate,
▪ 75% would like a single workplace
pension they can take with them when they change jobs,
▪ 66% said they would like a transferrable pension, and
▪ 66% say they would trust an independent or government body to manage a single workplace pension scheme.
Regarding performance:
▪ 74% want a unified approach between private and government sectors,
▪ 60% believe UK should match mandatory contribution levels as in other countries,
▪ 37% don’t trust their employer to pick the best scheme, and
▪ 75% don’t believe there is a clear central long-term pension strategy.
It’s a compelling argument for structural change, particularly when you factor in the positive outcomes and savings seen in Australia. Consolidated accounts and stapling would prevent account proliferation and have the potential to lower administration costs. Focus on member outcomes and streamlined regulation would encourage competition and better returns. Emphasis on choice and flexibility would empower members and removes switching barriers.
Ultimately the industry needs to enhance sustainability for the future, contributing to long-term fiscal stability and easing pressure on future generations. We are brought back to keeping the member experience at the centre of decision making. Providing customisable product and service solutions, enhanced member engagement, educated and seamless transition from accumulation phase to retirement and managing retirement. Overall, a significant shift to a member-centric approach.
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