There are two ways of looking at Australian pensions. There is the politician’s view, which picks the Aussie policies that validate the UK pension policy agenda. Then there’s the view of the commercial operators – primarily the master trusts, who are interested in how the industry and savers are reacting to those policies.
The key commercial imperative is to follow the money and that’s why I read with interest a study of “flows” into and out of Australian retirement savings.
This was brought to my attention by Paul Watson, who has featured on this blog a lot and is the person, if I was running pensions, I’d be in regular touch with
In sporting terms, net flows = momentum. They are the flows of money you get by your own efforts rather than by being there – they are a kind of alpha.
If you have a strong capital base in the first place, it is maintaining that momentum by capturing more of the net available flows (aka pie) , net flows is your key metric. It’s the amount you are getting or losing relative to what you are naturally entitled to (your natural flow) and the article redefines the net flow as “competitive”.
Natural flows – the money you get anyway
Overall flows into Australian Super are naturally increasing as the Government ratchets up the compulsory savings rate so that in inflation adjusted terms , real flows are likely to increase by 2.1% in 2024. These natural flows benefit the big players (the Supers) – our equivalent of the profit for member master trusts (Nest – People’s)
The long-awaited 2017 AE reforms will likely have the same effect but Australia is an example to the UK in patience. The super industry has waited a decade for this final hike and not sat on its arse pathetically moaning about “adequacy” in the meantime. “We make the best of what we’ve got” – aka improve VFM, is the way that the competitive market down under has kept the public on its side. “We were unlucky” is a phrase less heard than “losers“. You don’t get much of a second chance down-under.
Winning market share by being better (competitive flows)
Supers seem pretty good at building money up, but struggle to keep big pots which savers like to take away and give to retail managers. The report looks at “competitive flows” which we might liken to guerrilla warfare around the fringes. Here are the tactics that lead to money being switched between supers and into retail pensions
The competitive flow landscape is far more complex with many factors at play across different market sub-segments. Some of these factors include:
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Impact of investment performance and resulting publicity – good and bad – arising in particular from the YFYS (Your Future, Your Super) performance test;
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Marketing, branding and member acquisition activities;
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Media coverage of developments such as greenwashing accusations, cybersecurity breaches and fund mergers or terminations;
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Fund switching as members change jobs, accounting for impact of fund stapling that operated for a full year in FY23; and
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Decisions made by financial advisers.
All of this, looks like marketing to me. It’s all about individuals making choices with their money and if it matters in Australia , the view is that it will matter in the UK. The big master trusts cannot get complacent.
While I won’t get into the weeds of “winners and losers” in the Australian system, I was struck by two final conclusions of the report. The common features of the funds that through competitive flows had more than 5% growth had two things in common
- a strong relationship with financial advisers
- a perceived commitment to ethical and ESG factors
Australians don’t win all of the time
While I usually see Australia as a marker for our pension system, I can see ways of doing things better.
Blogs like this usually attract David Harris’ attention , so I will end with this memory from last summer.
