The world’s population is ageing – so what are we doing about it?

Apologies for the typo, but don’t let this put you off. This chart is important.

It tells us that there is a burden on younger generations to support their parents, a burden which can only be sustained by parents being less greedy and children being more generous.

Jim Hennington of Australian consultancy Optima, points to an explanation as  to why Australia does not have a culture of insuring people against their old age. David Orford set up Optma

“I remember when I was working in Canada, almost 100 per cent of Canadians are on lifetime pensions,” Mr Orford recalls. “When I started working in Toronto, they asked me what sort of superannuation system we had in Australia, and I replied that we basically offer lump sums that people can take as account-based pensions. And they fell on the floor laughing, because it was so foreign to them. They asked me why we would have a system where people could take a lump sum, because they then had to worry about the investment value of their retirement savings.”

The problem for Australia is that it is a young country – correction “was” an old country. Australia is ageing and so is the rest of the world, excepting Africa

When Australia set up Superannuation, it reckoned without ageing , or at least considered it tomorrow’s problem. That’s why the Super system has until recently targeted the pot not the pension. Australia has recently woken up to this and implemented a Retirement Income Covenant that assures savers with a means to turn those pots to pensions.

But in Britain , there is a perception that a pot is a pension.

British workers don’t understand how the State Pension works, while many struggle on even the basic aspects of how the state retirement system works, according to a new report.

The study published by the Policy Institute at King’s College London and think tank Phoenix Insight found that many people overestimated their knowledge of the State Pension, with the most common misconception being that National Insurance contributions are stored in a personal pot which is accessible at State Pension age.

Britain didn’t have the disadvantage of Australia, we chose to throw our advantage away by abandoning a pension culture in 2014 when Chancellor George Osborne told the nation that nobody would ever have to buy an annuity again.

Add to this, the denial to generations of workers in the private sector the opportunity to join a defined benefit “pension ” scheme.

Young Britain is now a demographic that has forgotten that unlike their older families, they do not have much insurance against old age.

They are not alone, young Dutch people have decided to abandon Defined Benefit pensions and re-establish their system on a DC basis where every age band is treated equally fairly. Of course the definition of “fair” means lower contributions for most and  a risk transfer from Government and employers to members of Dutch pension schemes.

Jim Hennington , when pointing to the chart at the top highlights a valid point.

 “As a society, we spend far too much time focusing on short-term investment issues around liquidity and accumulating money and tax dodges, when we should really be focused on something that is much longer term.”

People that do use lifetime pensions can receive much more income from their superannuation account balance. The government has set the scene, but the industry seems to wait for compulsion before it will respond to the opportunities.

The pension freedoms allowed retirement savers to ski downhill. But there is – in this country – no chairlift back up and most people are stuck at the bottom of the mountain.

We have a chance to revert to a retirement income culture – an AgeWage culture – where people swap freedom for a wage for life. The Netherlands have a chance to salvage theirs by adopting CDC style decumulation as the default for savers moving out of DB. But we have to be brave and agree that much as freedom is attractive, most people want the freedom not to choose it.

The world’s population is ageing. Britain should be at the forefront of countries showing how to insure against extreme old age. We could still, but it will mean changing the mindset, as Australia’s Retirement Income Covenant is changing a savings culture to a pensions culture.

We have started by smartening up our pensions saving using the VFM Framework, but we need to move on soon and smarten up the way we spend those savings.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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