What Australia's superfund structure can teach UK schemes

There are, of course, similarities: the UK introduced auto-enrolment in 2012 – a form of 'soft compulsion' relying on the member's inertia to keep them within the scheme – roughly reflecting the system Australia imposed in 1992.

But there are significant differences between the Australian Superannuation and the British pension system, and the biggest one is that in Australia, contributions come largely from the employer, and they are compulsory.

With 30 years of automatic workplace deductions, now at 11 per cent – rising to 11.5 per cent later this year – and with far fewer but larger pension schemes, Australian Superannuation funds have increased to the size of $A3.5tn (£1.8tn), as of last year. 

This amounts to 130 per cent of the Australian economy.

Owning the country's infrastructure

Australian pension funds are now a major player in the country's economy, having played a substantial role in the country's privatisation programme of recent decades, and they have an interest in much of the country's infrastructure – owning airports, ports and latterly renewable energy infrastructure.

Nick Sherry, a former superannuation minister, says: "Everything that was privatised over the past 20 or 25 years, the superfunds bought them, as they were growing. We've run out of investment opportunities in Australia, so we're now looking abroad for investment opportunities."

As a consequence Australian pension funds now own, in partnership with Local Government Pension Scheme funds, the M6 toll booth in the UK, as well as the company behind Manchester, Stansted and East Midlands airports.

Australian Superannuation was launched in 1992, generated in part from discussions during Bob Hawke's Labor government in the 1980s, to offer a savings plan for the average working man. At the time, there was a defined benefit system for the affluent middle classes and a means-tested state pension, and not much else.

So a new defined contribution system was set up from scratch, which saw employers make, by law, a contribution into an individual's pension fund, starting at 3 per cent, rising to 9 per cent in the 2000s, and then 12 per cent in 2025.

Employees are taxed on the way in, at 15 per cent on contributions, which the fund pays, and also on investment returns, but no tax is levied when people draw down their pension.

There is no official retirement age in Australia, but people can currently start drawing their benefits from the age of 60, as long as they meet the condition of release.