As most people (in pensions) know, Australia has a thriving retirement savings industry that works because there is a social contract between Government, Unions and Employers to fund workers pensions at ever-increasing amounts. I don’t want to do a teach in – if you want to read up – here’s Wiki.
What is most interesting to me about the Australian system is the personal engagement among many Australians in “their Super” – Super being the superlative applied to superannuation funds! In Aus, it is the member -not the employer that gets to choose their “Workie”. Employers use a clearing system where a single feed to the clearer, tags the ultimate destination of the money – the clearer does the rest.
The experience of the past five years tells me that in the UK, the employer has engaged with auto-enrolment but not with the workplace pension. A recent blog remarked that even now, the intent of the Pensions Regulator is to ensure compliance with the processes of auto-enrolment and not engagement with the build up of capital within member’s funds.
While this will be acceptable in the short term, the creation of savings balances within the pension pots will attract the interest of members over time and employers will be called to account for both the choice of workplace pension and its reason for keeping it.
“Workie” the lovechild of benevolent paternalists?
The role of the employer as sponsor , AE administrator , fund selector and fund governor, is a hangover from an earlier time when British employers did run pensions as a fully integrated part of their reward strategy. They contributed to pensions because they wanted to not because “it’s the law”.
The 1m new employers who have “embraced” auto-enrolment have yet to show much enthusiasm for the workplace pensions they sponsor. If they are the offspring of “benevolent paternalism”, then they’re the bastard children.
If we want a properly functioning workplace pension system, then either
- employers are going to need to pay more attention to their pension..or
- we are going to need to switch to a system of individual choice (and clearing).
The pension dashboard suggests that the Government has given up on the original conception of a personal pension that employees could take from job to job and accepted the principle of one workie/one employer. This would suggest that employers are stuck with “choice and governance” for a good time to come.
Choice and governance
Despite attempts to get informed decision making into the market, the bare stats suggest that for most employers “NEST” was a “good enough” choice- it is and there’s no problem having a NEST-centric auto-enrolment system. We have- apart from NEST, a wide range of alternatives, all of which are “good enough” and some – in certain circumstances – much better than NEST. That is the sign of a functioning market. Those who want a “NEST fits all” approach beware, there is nothing that will so quickly destroy a success story as a state monopoly.
What has yet to develop in the UK, but flourishes in Australia is a means for people to engage with their own pension. Jo Cumbo has been posting back links from her native land of the websites available in Aus to members. Here’s an example.
While you have to pay to see the information, the comparison process is well laid out and participation in these web pages seems universal (at least by super providers). The shift of money out of workplace pensions into the Australian version of SIPPs continues apace but – since the Cooper report, the value of collective pensions (the original conception of Super) seems to be reasserting itself.
This dynamic between enthusiasm for “going it alone” and the prudence of collective schemes, is healthy. What we can learn from Australia is that if we want people saving more, we have to make the saving sexy. That means putting the emphasis back on returns. This is SuperSavvy’s “return page”.
Right now , Britain is building the infrastructure to properly report on workplace pensions. Yesterday was an important day as we saw the implementation of MIFID II (albeit with rather too many exemptions). Chris Sier’s institutional working group on costs and charges, continues its good work (as does the Transparency Task Force). The IGCs should – without exception – be giving us proper value for money assessments, the Trustee Chairs of our occupational DC schemes are consulting with the DWP on how best to disclose value and money to members.
Full of sound and fury…
But I wonder whether the workplace pension has yet to become part of our financial culture. The British Steel and Tata pensions (run at ultra-low costs by L&G and Aviva respectively, were hardly considered as transfer options in the BSPS “Time to Choose” election.
There was a distinct whiff of condescension from trustees, pension managers and IFAs about these bastard children (my analogy).
The IGCs of both L&G and Aviva need to be asking serious questions about why these excellent products were not promoted to those who were exercising their CETVs.
My suspicion is that neither TATA or Greybull or Liberty wanted to be associated with any pension risk from BSPS and that the insurers were quite happy to fall in line.
While politicians are full of sound and fury about the success of workplace pensions, this will signify nothing – if those workplace pensions are not brought into the mainstream consciousness of those who use them.
In Australia, websites like Supersavvy, Moneysmart, Australian Super, Superguide, and choice abound and prosper because Australians care about their Super as if it were their house, their car , their family.
Until I see evidence for demand among the British public to know what is going on within the workplace pensions into which they are investing and some interest in comparison, I will not believe that workplace pensions are really working.
Demand or supply?
The British financial services industry is incredibly weedy. All attempts to get comparison into play are met with howls of indignation from IGCs, Trustees and fund managers. League Tables and the like are poo-pooed. Past performance is dismissed, any sense of accountability for outcomes is lost in a hopeless pass the parcel between the various stakeholders at play.
We need a bit more of this!
And if we adopted that attitude elsewhere, we might win a few more cricket matches too!
I’d like to see a little more help from Government for those promoting choice, comparison and good governance in this country.
Wouldn’t you?