Bananarama and the Funboy Three do not figure on my Spotify playlists , they supplied us with some annoying earworms and the inspiration for this blog but ‘Tain’t What You Do (It’s the Way That You Do It) is a song written by jazz musicians Melvin “Sy” Oliver and James “Trummy” Young. It was first recorded in 1937 by Jimmie Lunceford, Harry James, and Ella Fitzgerald and here it is
I’m going to remind readers – boringly. that the majority of your pension pots at retirement aren’t down to your savings, but your investments
The financial services are keen to promote saving because without it there wouldn’t be a financial services industry and it annoys me that most of the measurement of how good a pension system we have, is measured by organizations who’s primary measure is the level of mandated savings in the system.
The chart above shows the impact of contributions on the pot in red, a core level of growth in grey, a 1% boost from getting to average investment performance in yellow and a further boost of 1% which is about the best you can hope for, being outperformance of 1% against the average. All these results are taken from our proprietary data set and I’d be happy to share this and other charts with any of you.
In an excellent article, which I hope to publish on this blog shortly, Robin Powell explains that despite being ranked 4th in the world by dint of its $2tr mandated savings pot, Australia has work to do
..there is a broad consensus that the system could be improved by increasing transparency, lowering costs, reducing tax concessions for the well-off and having a legislated goal for super.
From July 1, 2021, new reforms will be introduced aimed at improving the efficiency of the system, reducing fees and holding super funds to account for underperformance.
There are also steps being taken to get wealthy Australians to spend their pots , many of which roll up as reservoirs of capital , feeding the financial services industry but doing little for the economy and sucking tax revenues from poor to rich (sound familiar?).
The Australians are waking up to some alarming realities, the retirement savings industry is neither socially just or economically advantageous, it is becoming otiose. While this realization sinks in, the plan to increase Super’s mandated contribution increase from 9.5 to 12% over the first five years of the decade has been put on hold. $30bn in rents is being extracted by financial services companies from the existing pots, enough it seems is enough.
Putting something back
One Australian reaction to the pandemic was to release wealth from younger people’s pension pots to provide emergency cash. This has been much criticized in the UK as it is can be seen as a tax on the future prosperity of the young rather than relief from general taxation.
Playing hardball with the young goes hand in hand with playing hardball with the planet and Australia lags other OECD countries, especially Britain, in the use of its retirement funds to drive positive change on climate issues.
I do not want to over-egg this pudding, but the Australian retirement savings system seems to be focused entirely on wealth preservation. It looks from here, that the economic miracle of Super is stifling wage growth and driving inter-generational inequality to a much greater degree of other – less highly rated pension systems – the UK’s especially.
Having spent much of the last 25 years being lectured by David Harris esq. ,I think now is the time to hoist the union jack up and make a few claims for what us limeys are doing right.
The way we invest it
Britain has embraced ESG like no other country. We can look forward to COPS 26 in November with impending pride. We will by then be reporting , using TCFD on our pension funds, we will have launched a Government backed special purpose vehicle to allow our savings to access private markets and we will be close to launching our first collective scheme that will see over 160,000 savers get pensions not pension pots at retirement.
We are increasingly investing for social good and the social purpose of our investments will be a proper wage in retirement for millions who have saved, not because they have to, but because they chose to. Rather than a mandatory savings system, we have a voluntary system with a not too generous safety net for those who choose to opt-out.
The Government has improved the investment of our pensions by making positive interventions that have kept the right balance between innovation and regulation. The charge cap and bans on active member discounts and consultancy charging have had a large part to play in limiting excesses in workplace pensions. The reporting of hidden costs and charges in Chair report have made for greater transparency and reduced bad practice. Now moves to drive consolidation, especially among occupational schemes, is creating the economies of scale enjoyed in Australia by Super Funds.
Government policy appears in many ways, ahead of Australia as does industry practice. Indeed we have so turned round our pension saving system since the Pension Commission reported in 2004/5 that we are well on the way to restoring public confidence in pensions in the UK.
We are saving better and investing better and we should be back among the best pension systems in the world. Currently we rank only 14th. but I would put a “PP” against that place, Britain is once again going in the right direction. It’s not just what you save, it’s the way that you invest it.