I’ve been asked to talk to some pension people later this month on Supertrusts and what we can learn from the Australian Superannuation System.
I have attended a number of lectures on this subject over the past few years, mainly thanks to David Harris of Tor Financial, himself an Aussie though one who understands pension policy in all the major Western Markets.
My conclusion is that in terms of efficiencies, we are far ahead of the Australian model. The new mastertrusts such as NEST and NOW and the People’s Pensions deliver more for less. Unlike the UK, the Australian system does not require a pension to be bought with the retirement savings built up and while this might look an advantage at a time when annuity rates are artificially depressed, the global pension consensus is moving towards pensions rather than the Australian free for all.
What Australia has which we don’t have is compulsory membership and an employer contribution of 9% which is likely to increase to 12% as a result of the recent “Henry” review – ( love that!). As a result, Australians have the highest per capita holdings in managed funds in the world and the Australian economy is powered by the Aus $1.4tr invested.
But the compulsory system has been achieved as a result of collective bargaining between government, unions and employers. Quite obviously such conditions do not exist in the UK and our system of auto-enrolment is not only not compulsory but is considerably less ambitious than the contribution progress when “Super” was introduced down-under.
So what has the Australian Superranuation system ever done for us?
Well it seems to have inspired a number of organisations to take on the established insurers and even got the established insurers to offer alternatives to their group personal pensions.
You can now buy something that looks remarkably like an Australian Supertrust from the DWP’s subsid NEST, from the Danish Government‘s equivalent (ATP) t/as NOW! You can buy mastertursts set up by pension consultants such as Xafinity, Mercer or Goddard Perry or talk with Legal and General and Standard Life who will offer you theirs.
Then there are a host of suppliers of mastertrusts to specific industries who are opening their doors to all, they include Blue Sky Pensions (formerly the JIB electricity plan) and most prominently the People’s Pension run by B &CE who have formerly catered for the builder’s federation. Add to this list other runners and riders, sticking to their industry;- the Pensions Trust, the Social Housing Pension Scheme, the Merchant Navy Pension Plan and the Plumbers Pension.
While many large employers (and a few small ones) will stick to their single employer occupational trusts, the Super experience has clearly given UK pension providers the confidence to provide a genuine alternative to what appeared the all conquering group personal pensions.
And why might this be a good thing?
Well to begin with, these large multi-employer schemes have economies of scale on their side that cannot be achieved by individual personal pensions. The scale buys cheaper asset management, cheaper administration and affords professional trusteeship which should improve overall governance.
Thinking down the line- these mastertrusts are collective schemes which could provide collective drawdown or even the superefficient scheme pensions about which I wrote so much last year. I have for the moment given up on my vision or relaxing the rules so that we can offer better decumulation options, if only to deal with the immediate crisis in annuity purchase.
The point is that if we can group our collective DC savings around a few large master (super) trusts, we may have created the basis for pooling needed to run scheme pensions (albeit without the current guarantees that are strangling insured varieties).
I would like to think that what we have ended up with a balance of pension options without the Australians but give Bruce and Sheila their due, I doubt we’d have got there this fast.
Taking a view across the pension landscape, I see a wonderful vista of pension options ranging from the highly specialised SIPP products suiting the investment enthusiasts to the massively simplified NOW pensions that offers no bells whistles or even investment choice. In between are the group personal pensions and their little brothers the stakeholder pensions and the corporate wraps that bring pensions, ISAs and share schemes together under a single lens.
While I know this sounds complicated, it shouldn’t be. We are getting rid of a lot of the complicated baggage next month when we lose protected rights and though the tax rules for high-earners are now every bit as complex as they were before “tax-simplification” and the rules surrounding aut0-enrolment look ready to simplify before they’ve even been finished, we do look as if going forward we have a more sensible, fairer and workable pension system than I have seen in my working lifetime.
If you fancy having a look at my Prezi (a work in progress)- it’s here http://prezi.com/6j8xlqqf4w9w/present/?auth_key=rlozhjl&follow=maigh6amx43e
- Putting your staff before your pension scheme (henrytapper.com)
- Bill Whitehead’s drawers (henrytapper.com)
- Don’t kid people that pensions are easy (henrytapper.com)
- Who pays for a register of pensions? (henrytapper.com)
- How to get the pension you’ve earned (henrytapper.com)
- Selling NEST and auto-enrolment to the pension weary (henrytapper.com)
- Letters: Axe limit on low-cost pension scheme (guardian.co.uk)