Jo Cumbo has written an important piece on what the UK can learn from the Australian pension system. The article is not written for the pensions industry but for the FT reader, a sophisticated type who can appreciate that there is more to a pension than what is taken out of your pay packet.
The frustration for those who are the subjects of the pension industry’s “financial education” programs is that , despite the advice being “save harder for longer”, there is virtually no accountability for what happens to their money once it has been taken from them.
One of Jo’s many insights was that Australian savers take a keen interest in the returns they get on their money. I am not keen on national stereotyping but I do think that Australians have competition in their DNA. I see this in their sporting behaviour, in the way they gamble and I see it in their attitude to pensions.
The big question asked by the FT article is whether this culture is replicable in the UK.
In my view , we have to start by becoming aware that it is not just the amount that gets paid into our pensions but what happens to that money.
There is a well-rehearsed challenge to this happening. Many say that our system of defaults deliberately discourages people from “paying attention to their pension”, making ownership of decisions too hard. This argument is conveniently forgotten at retirement where , after maybe 40 years of saving, we are asked to make decisions about 30 years of spending.
Most of us lack the experience and self-confident to do this and I believe this is largely down – not to the lack of financial education – but the failure of financial education to capture our imagination.
We simply don’t make the business of pensions at all interesting to people. Our over-emphasis on the importance of saving harder and longer is not balanced by the conveniently ignored fact that what comes out of a retirement savings plan is down to the quality of the fiduciary’s management of it. Use the right plan manager and you might have a 30% better pension outcome than using a consistently under-performing manager.
The pension industry has tried to play down this inconvenient fact by homogenising pensions or by calling for us to rate our pension provider on the member experience. This can allow poor performers to sweat their brand through advertising , to convince you that they are delivering to you when they are not. I am sure we can all think of triumphs of marketing over reality over the past 50 years.
What the Australians can and are teaching us , is that outcomes matter and that we can learn from investment experience how to invest for our futures with greater success
The Australian approach to investment is to spend more on investment management and expect more in return. Funds that don’t yield a good return get taken over by those that do, managers are scrutinised in detail and there is no soft landing for those who fail.
That’s what we need in the UK. I hope that we get the same value for money as Australians are beginning to enjoy.