We like to think of the Australian pension system as a great success, but this post suggests that it suffers from what I suspect is a global problem. While people understand the simple idea of a “wage in retirement”, the pension has become a very complex thing to deliver. Most people don’t understand how their pensions work and how they fit together.
I suspect that the boast of “the most complex pensions system in the world”, is one that many consultants make, knowing that making sense of pensions is a lucrative business.
In the UK we moan about the complexities of the state and private pension system but we do not have, as the Australians do, a means tested state pension where the more you save, the less you are entitled to from the State. There is a little means testing left in the benefits space and pension credit shows how complicated the administration of a means tested system gets.
So we can count our lucky stats that despite having a non-mandatory second pension, we have high participation rates without fear that the more we save , the less state pension we get. This however is how it works in Australia.
What is more, the Australians are forever at each other’s throats over value for money, complaining about fund performance and baffled about their retirement income covenant (getting the pension paid).
So before we fall over ourselves to wish we had the Australian system in the UK, let’s remember what we have achieved.
- 90% + participation rates in workplace pensions
- A simplified state pension that people generally understand
- A system of benefits unlocked by pension credit for those with low retirement incomes
- Funding for a large part of the workplace system
- Unfunded pensions closely monitored by a Government Actuary and managed as part of the Treasury’s overall budgeting.
Taken together, we have a considerably better pension system than many other G7 countries. Yet we are keen to run down how we organise pensions and wish we were Australians.
Sometimes I think we don’t know how lucky we are