I managed all 73 minutes of Nico and Darren’s VFM podcast featuring John Chilman while sitting on a South West Train.  The podcast was more comfortable than the journey but both were too long!

One of the “news story” in what appears a quiet week for news , was that John Greenwood had been to Australia and had returned with fresh insights into the Australian superannuation system, we will have to wait to find out what is new in Australia as the pod repeated the received wisdom;

1. 30+ years of mandatory savings has led to the best pension system in the world
2. Lessons for UK , save longer , save harder and try to stop frogs jumping out of pots when the auto-enrolment heat is turned up

Coincidentally, another John has also recently returned from Australia after a rigorous fact-finding mission and he told me a rather different tale

1. Australian pension system the most political in the world
2. Innovation stifled by vested interest and lack of competition
3. Scale creating atrophy and denying members pensions

This is a very different story and probably needs a better explanation than I give here. Aussie John‘s view is that the politicisation of pensions is not in the interests of savers, but very much in the interests of a handful of politicians who make a living talking to anyone who will listen about their pension achievements.

Mandated contributions and pot for life has meant that certain starter schemes (in particular hospitality) are over-sized as a high proportion of Australians start their careers in hospitality and don’t switch pensions. Government intervention to create scale has killed competition and led to a few large schemes becoming complacent.

The power of large schemes is such that they are able to flout the attempts of the Australian Treasury to develop the superannuation system from a savings to a pension plan. The Retirement Income Covenant, despite the agreed common purpose of superannuation to “pay pensions” is developing at a glacial rate.

The picture painted to me was one of great complacency in Australia and sadly I suspect that we are buying this complacent vision as a template for the UK.

John Chilman and DB

John Chilman is a good CEO of Railpen, a stalwart of the PLSA and I’m sure an excellent accountant. He is not a natural disruptor, though I sense he might have privately challenged some of the statements made on the podcast, especially about the Civil Service DC scheme (what’s that?).

However, he brought to this podcast , a fresh pair of eyes on the issue of value for money for DC pension savers.

John made the excellent point that 75% of the benefit arising from a funded defined benefit scheme comes not from contributions but from investment so that we have considerably more chance of increasing member outcomes by getting investment right than by hoping for greater engagement with voluntary savings increases (e.g. those above AE minima).

He made the point that the PLSA DC schemes (master trusts and large occupational schemes) are unlikely to register the impact of voluntary savings, opt-ins and opt-outs.

So the PLSA has been blindsided by the FCA’s recent research that suggests a substantial decrease in auto-enrolment savings by people dumbing down their contributions and opting out. The problem for the PLSA, as with Australian Super is that the views of individuals working for small employers are little heard and – in the immensity of their scale, little felt.

This is the downside of consolidation. There is virtually no feedback loop available to the PLSA beyond its membership and as schemes consolidate, the only voices being heard are those of large multi-employer schemes and from employers who are operating the generous remuneration and pension strategies from which hardly anyone opts out.

This sounds like it is setting off alarm bells for John Chilman. It certainly should be. If by combining small schemes into super schemes , we end up with the problems my friend was outlining in Australia, we will have driven away the competition that is such an important feature of our workplace pensions. We cannot allow that.

I sense , something of my friend’s frustration in conversations with Optima Pensions who act as my unpaid sounding board on the state of the Australian nation. I would be interested in hearing the view of Jim Hennington and Co. on my friend’s analysis of the downside of big pensions schemes.

Here I think , we do have something to learn from the Australian system.

The three Johns;

To clarify, John Greenwood, Aussie John and John Chilman are different people and distinct in their views