I have never been to Australia, I should go I know, but we have Earl’s Court.
My good friend Jim Hennington has recently returned to his native Oz after a few years over here teaching us some tricks on how to keep complex ideas simple. If Jim has his way, life would be as easy and simple as a Mac, he’d make it so.
We keep in touch on Linked In and we got into a conversation this week about the Australian pension system known as Super (Superannuation if you’re a British actuary).
It started out with him sending me this article a precis of which could be
“Australians know Jack Shit about what they’re doing, but they’re happy and proud of what they’re doing and why they’re doing it”.
I responded as any self respecting Pom would by explaining to Jim that his nation was populated by ignorant convicts who did whatever their Government told them to so that they could spend too much time lying on the beach with a few tinnies dreaming of winning a test series in the UK.
Jim did not rise to the bait but sent me instead this extraordinary message.
Without a clear objective there can be a LOT of wheel spinning.
Australia has a Financial System Inquiry going on at present. The first recommended action in relation to “superannuation and retirement incomes”
isSet clear objectives for the superannuation system.
A clear statement of the system’s objectives is necessary to target policy settings better and make them more stable.
Clearly articulated objectives that have broad community support would help to align policy settings, industry initiatives and community expectations.
Jim then refers me to a the source publications; here . He finishes
I remember in the UK struggling to find a clear definition of ‘adequate retirement income’ when looking through all the various UK consultation type papers.
The man is absolutely right. We love the trees , we forget about the wood.
Last night I chaired a meeting of the Institute and Faculty of Actuaries in London. The audience were nervous for most of it as we discussed issues impacting the lives of those who don’t know algebra from an algorithm. The meeting caught fire as we moved to a discussion of hybrid money purchase arrangements complete with GMP reconciliation and the assumptions used in TVAS calculations.
I know actuaries are special needs , but their plight seems to have infected my thinking too. I was ashamed reading Jim’s mail that I had not and maybe cannot articulate what good looks like – as in a “good standard of living when I get older” or a “good way of paying for it” or even a “good thing to do”.
Of course a value judgement like “good” relies on a consensus, which is created by precisely the process that Jim is talking about. As these sheep-friendly cons gather round the barbie and congratulate themselves on their retirement wealth, we wonder whether we can live with the freedoms we now have.
Judging by last night, we would happily adopt the recommendation of Jack McVitie and LEBC and make all financial decisions taken on decumulation monies subject to a 30 day cooling off period. That would be a third line of defence behind Pension Wise and the insurance company grilling to which those wishing to be free are compelled to undergo.
Australia is a confident nation , proud to be young and proud to be free of us. It has clear objectives for what it is doing which people understand. Australians may not understand Jack Shit about their Super but I don’t understand Jack Shit about this computer I’m typing on (except it works).
So the Pension Plowman Election Manifesto now calls for a clear definition of “adequate retirement income” to which we all can sign up to. We need a clear financial goal that says what the unfunded bit (state pension) and the funded bit (pension savings) should add up to.
If we get that far and everyone knows what the minimum height of the bar is, then we can build to set our own private targets.
I guess right now we may still need a few state top-ups to get to that minimum bar , but things are changing, auto-enrolment is changing things and people’s own engagement in their financial futures can change things still more.
I don’t think we need a compulsory system as they have in Australia, but I do think we need the clarity and simplicity of their approach and we need that clear statement that Jim was after when he was over here.
Australia continues to rise- damn it! Australia is irrepressible! The likes of Jim Hennington, David Harris,Vivi Friedgut, John Tsalos and Jo Cumbo are some of the very best people in the whole world.
I am not Australian, I am British – I am different- and bloody proud of it.
But being British doesn’t mean I cannot learn.
If you’d like to find out how Australians are going about offering financial guidance to its population, have a look at this page of Jim’s website and watch the video on the right hand side. I think the boy’s onto something!
So’s she for that matter..
The key statement for me from the video is that ‘the figures provide ”an holistic assessment of the households financial situation”. Looks like the kind of tool we need members to know who can access similar bits of kit to help them plan for their future.
To many numbers are looked at in isolation and in the end the member effectively sticks in a pin a piece of paper to make a decision or makes no decision at all. The result to paraphrase Mr Micawber is misery.
One of my former colleagues upped sticks to Oz, via sailing through the Panama Canal, and is amazed by what she reads the UK politicians are up to here. So am I, but I’m not brave enough to sail half way round the world…
Hi Henry,
The Australian Retirement System aka Superannuation is often rating very highly in my view it only does the accumulating well. There is a lot of work to be down to help Australians in the decumulation phase.
Not calling it a pension system is appropriate. Retirees much make a choice when they retire and that choice is either take benefit as a lump sum or an account-based drawdown product. However it fails to provide protection against common retirement risks such as sequencing risk and longevity risk.
Majority of Australians are not self-sufficient in retirement with the number estimated at around 20%. Of the reminder they access either full or part state pension.
Here is a paper we put out last year on the adequcy (or otherwise) of the system http://bit.ly/superadequacy.
The results of that survey of Australians about their attitudes to superannuation has received quite a bit of coverage Down Under. My response to such surveys is to refer people to this Yes Prime Minister episode: http://bit.ly/17vpR5b
How can people say how much they will need in retirement any more than they can forsee the future when they are working?
CAn a 22 year old straight out of university say how much they need at 35 never mind 65 or 85?
It is just as hard for someone at 45 or 55 or indeed 65 to think what they will need or want at 75 or 85.
At least until we have more publicly available information on the issues, and even then perhaps it is impossible.
And, it is unrealistic pretending that if you set a target level you can work out how much to save. A look at the excellent work by Aon Hewitt on DC outcomes shows that is precariously uncertain – and if the OECD reconsiders its DC projection and annuitisation assumptions and makes them more realistic, and all the much lauded DC systems in Australia etc are treated realistically, we will see more clearly the nature of the uncertainty in the DC world (and of course the same a
Pies in a different way for DB or DA or CDC or whatever).
What is needed is a more flexible labour market at older ages and for everyone to stop kidding themselves that we can successfully provide for precise incomes at a precise age over say 65 by targeting savings before then. Working flexibility is the only real solution.
Stephen
Thanks for your post and the links and the video. I guess my blog was about the way Australia has addressed adequacy so far, I’m not so impressed by execution and I don’t rate your help for people post retirement any more than our pension freedoms!!
Andy is right that the DC system is a chaotic mess the import of which is still to be felt (in meagre later life standards of living)