How about taking a steer from Australia (guest blog from Ralph Frank)

australia

 

Australia introduced compulsory workplace retirement saving, the ‘Superannuation Guarantee’ (“Super”), in 1992.  The resulting Super system is largely Defined Contribution (“DC”) in nature and has many parallels with Automatic Enrolment in the UK.  Consequently, the Super system might be a source of empirical insights that are relevant to the UK, based on over 20 years’ experience covering millions of savers and trillions of Dollars saved.

 

The objectives of the Super system have evolved over time, as the system has matured and grown.  The Australian Government recently sponsored a wide-ranging review by a committee independent of the Government into Australia’s financial system, the ‘Financial System Inquiry’ (“FSI”), including the Super system.  The Government agreed to develop and introduce legislation to enshrine the objective of the Super system in response to the findings of the FSI.  The legislated objective is intended to provide a basis for making and evaluating future decisions related to the Super system.

 

The proposed primary objective of the Super system is “to provide income in retirement to substitute or supplement the Age Pension” (the Age Pension being the pension paid by the Australian Government to those aged over 65, subject to various reductions).  This objective is now subject to consultation.  Australia seems to be moving more explicitly towards ensuring that its savers are providing for an income in later life at a time when the UK has introduced freedom and choice from age 55 and is incentivising first-home purchases.

 

The proposed primary objective is supplemented by a number of subsidiary objectives.  One of these supporting factors is the intent to relieve fiscal pressure on the Government from the retirement income system.  The Government recognises that the more that is privately saved, the less the burden on the public purse.  However, the targeted tax concessions that incentivise private saving do have a limit in order to support the fiscal sustainability of the system.  The limit does not seem to have been identified as yet.  However, a degree of tax relief is not being withdrawn before the cap has been determined either – unlike in the UK.

 

The intent of increasing national saving was a key part of the original Super objectives in the early 1990s.  However, as the saving culture in Australia has taken a firmer hold, so the drive to emphasise the need to save seems to have reduced.  By contrast, the savings rate in the UK continues to fall so continued promotion of the need to save is likely for some time.

 

The UK has enjoyed a long-standing rivalry with Australia over time, particularly in sport.  However, Australian experience and methods have been adopted where these have been felt to improve on home-grown alternatives.  Currently, the English cricket and rugby teams have Australian coaches……and their best results of recent times.  Why not apply this open-mindedness to learning from the Australians when it comes to providing for retirement too?

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to How about taking a steer from Australia (guest blog from Ralph Frank)

  1. Ian Neale says:

    Ralph

    I’m not quite sure whether in saying

    ” the targeted tax concessions that incentivise private saving do have a limit in order to support the fiscal sustainability of the system. The limit does not seem to have been identified as yet.”

    you are referring to the limits on contributions, which certainly do exist. There are four kinds of superannuation contributions in the Australian system, each with its own limits and tax reliefs:

    – Super Guarantee (SG)
    – Concessional Contributions
    – Non-concessional Contributions
    – Co-contributions

    I can provide details for anyone who is interested!

    • Ralph Frank says:

      Thanks Ian. I was referring to the limit of tax concessions that the Government is willing to provide – i.e. how many billions (of tax dollars that the Government is willing to forego) in aggregate. Regards. Ralph

  2. henry tapper says:

    Interested ! Can you post them on the blog in a comments box – they may be worth a blog in their own right!

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