Not for profit pension providers could dominate the workplace pensions landscape, if the UK follows trends seen in the Australian pension market.
Talking at the 2019 Corporate Adviser Summit Nick Sherry, a former senator of Tasmania and first Australian Minister for Superannuation & Corporate Law, said that in recent years this mutual “not for profit” sector had overtaken the retail sector (pensions provided by the banks and insurers) in terms of assets under management, and had delivered better returns for members.
Sherry spoke about the lessons the UK auto-enrolment industry could learn from Australia, which has had mandatory workplace pensions since the 1980s.
He pointed out that the market had undergone considerable consolidation in recent years, and he expected this trend to be mirrored in the UK.
As he points out there were 2,484 corporate schemes in 2002 in Australia; by 2018 this figure stood at 24. In the industrial (mutual) sector the number of schemes had gone from 124 in 2002 to just 38 in 2018, while in the retail sector there had been a similar squeeze, with 254 schemes reducing to 118.
Sherry pointed out that one of the clear lessons to be learned was that large diversified schemes were best placed to deliver better returns to members over the longer term.
The lesson from Australia meant that there had to be serious questions about default funds that offered less than 50 per cent exposure to growth assets – such as equity and infrastructure.
Figures Sherry shared with the audience showed that there had been a huge increase in infrastructure investments within these funds.
Sherry added that for effective default systems in the UK there should be at least a 50 per cent exposure to these growth assets.
Sherry says that the UK could also learn from problems that had occurred within the Australian market. One of the biggest issue had concerned lost accounts. Figures suggest there were some 6.3m lost account in Australia, that between which accounted for around $18bn (Australian dollars).
Sherry says that the claim rate on these pots was just 2 per cent. Reforms were now under way to address this issue, including “pot follows member” reforms which will see accounts worth less than $6,000 automatically consolidated.
But the message for the UK, Sherry said, was that this was likely to be a “major issue” at some point in the future, unless adequate steps were taken to address this issue now.