There is much that the UK can learn from the Australian pensions system: the simplicity of the process for members, the look through to a single, bigger pot, the single set of rules from a single regulator, the strong regulatory interventions against bad industry practice.
Having just visited the country and spoken to many leading experts there, it is apparent that Australia has, after 32 years of mandated defined contribution pensions, got itself to a very strong position.
Many of these elements would, in an ideal world, be embraced by the UK. But we also need to remember how the foundations built in the two countries differ before we import wholesale a model as potentially disruptive as a lifetime provider model.
There are a number of issues that the UK needs to resolve before it can proceed down the Australian model, if indeed it decides the disruption to the status quo will be outweighed by the benefits to members such a move will actually bring.
Firstly, there is the issue around the current regulation of defined contribution. The ludicrous historical anomaly that sees employee A in a contract-based scheme treated differently to employee B in a trust-based scheme, in some cases with the same provider, needs urgent attention. Post pension freedoms, employee A can’t routinely be taken out of a strategy targeting annuity purchase without written consent or nerves of steel on the part of the provider. Sadly, employee A will have lost out big time on the arrival of the Truss/Kwarteng administration.
The Australian-style default performance test will require reform of the member consent to transfer rules, which is great, so let’s do it now before any more employee As experience sub-optimal challenges. Urgent reform is needed here.
Another learning from my trip to Australia is the extent to which the unions have played a role in creating the architecture super savers enjoy. That’s not to say the union influence is perfect, but it has resulted in the fact that Australia is populated with a majority of well-resourced profit-for-member providers who are, at their core, on the side of the member. That is not to disrespect the many good shareholder-owned providers in the UK, but if the employer is removed from the equation, a very, very strong regulator will be needed to protect their interests.
The role of the employer is also a big factor in this debate. Will the UK go above 8 per cent? It is a lot easier to destroy the energy that has been built around good workplace schemes than to create it. And let’s not forget, the employer is routinely cited as the optimum trustworthy channel for engaging employees. Neither nation has solved the guidance/advice conundrum, nor the retirement income piece, but let’s be cautious before throwing away the employer as a tool for engagement.
Then there are the tech issues. The lack of a unique identifier is a tragedy for the UK’s pensions tech initiatives. One wonders where we might have been if Tony Blair’s ID card policy had made it into the next Parliament.
The debate around the Australian system is a valuable challenge to us to examine how and why we do things the way we do.