When it comes to pensions, Australia remains a generation ahead of the UK, having introduced compulsory DC superannuation schemes in 1992. The recent Pension Schemes Bill referenced ‘Australia’ 75 times, with many of the government’s propsed reforms already realities there: from regulatory benchmarks to an increased focus on decumulation.
L&G’s DC & Workplace Savings team recently visited Australia, meeting super funds, regulators and government officials. We saw how DC can deliver better outcomes, but it is clear the adequacy challenge requires vision, commitment and a roadmap, particularly regarding decumulation.
Since the 2015 Pension Freedoms, UK retirees have enjoyed unprecedented flexibility in how they access their pension pots. But this has created two opposing challenges: many hoard savings, worried about them running out too soon, while others overspend.
L&G research found a majority (58 per cent) of people access their pension without seeking advice or guidance. Guidance can help, but it often lacks actionable nudges. This, not just policy design, can be the real decumulation barrier.
Pension dashboards will be a big step forward, helping to reframe pensions by highlighting projected retirement income. But, as we heard repeatedly in Australia, what we measure matters. Dashboards, guidance tools and regulation must encourage income-focused decision-making, not just pot growth.
Australia’s Retirement Income Covenant, introduced in 2022, requires ‘super’ funds to develop retirement income strategies that balance longevity, inflation and investment risk. Interestingly, many Australians still underspend, with most drawing only the minimum required to avoid tax consequences, which starts at 4 per cent at age 65 and increases with age. However, the principle is important: reframing retirement as planned income, not deferred spending. This was one of the strongest behavioural lessons from our visit.
A UK version wouldn’t need to be mandatory. Soft defaults, guidance-based benchmarks, or illustrative income frameworks, integrated into dashboards or decumulation products, could help retirees understand what a ‘sustainable’ income looks like. Done well, it could also mitigate overspending by introducing maximum as well as minimum drawdown guidance.
This fits neatly into a growing policy agenda. The DWP’s work on guided retirement income choices has opened the door to structured support in decumulation. The Pensions Review is reigniting conversations around adequacy, and the Value for Money (VfM) framework is moving towards outcome-based metrics. With a new Pensions Commission and targeted support framework, there is clear momentum behind a more joined-up approach.
The focus must remain on outcomes. Australia’s ‘Your Future, Your Super’ reforms improved investment performance but also caused herding and deprioritised ESG. The UK should learn from this by ensuring VfM doesn’t focus solely on charges and returns, but on whether products help members turn savings into meaningful, sustainable retirement income.
A mind shift worth making
Too often, members reach retirement thinking they’re financially prepared, because they see a large pot. However, £100,000 translates into approximately £5,404 a year. This disconnect highlights a fundamental challenge: we’ve built a system where people think in terms of pots, not income. It’s a challenge Australia is also grappling with, despite having higher average savings.
Thanks to AE, most UK savers haven’t had to think about much more than how much they save – but entering retirement is different. Savers must make complex decisions about how to turn their pot into an income that lasts, and while not all choices are irreversible, many carry long-term consequences. Guidance, targeted support and upcoming reforms will be key to building a more supportive system.
If the UK is serious about delivering better outcomes, we must facilitate this mindset shift, from pot to income, so savers understand not just what they’ve saved but what it means in practice.
Equally important is public trust. In Australia, trust is embedded. As the UK looks to shape a more supportive and transparent pension landscape, one crucial question stands: how can we ensure that trust in our pension system is not only restored, but earned for generations to come?
