Australians have more control over their pensions compared to individuals in the UK, according to Jonathan Hawkins, principal business consultant at Bravura Solutions, who warned the government needs to stop ‘tinkering’ with the pension system.
Speaking to FT Adviser, Hawkins discussed what the UK could learn from the Australian pension system as well as what the upcoming general election could mean for pension reforms.
Hawkins explained that Australia has had a DC system with mandatory contributions and employers contributing 10 per cent for more than 20 years. And in the past 10 years it has also gone through a number of successive changes.
He said: “Australia began to regulate the superfunds much better, similar to what’s happening now with consumer duty in the UK, although there are similarities, the timelines between the two countries are slightly different.”
Hawkins added in the UK there have been many years of ‘tinkering’ with the pension system while Australia moved to a more ‘prescribed model’ and the UK could learn a lot from this.
Individual has more control
Although Hawkins pointed out that the entire Australian system cannot just be picked up and dropped into the UK system, he said it was important to look at what parts of the overseas system have worked well and how they could be adapted to fit the system here.
One key thing Hawkins said the UK could learn from is the fact Australians have much more control over their pension accumulation.
“Employees understand their superannuation more because everyone in the workplace generally follows the same template and so everyone has the same sort of understanding of what’s coming through and the individual can choose the provider they want to be with,” said Hawkins.
In the past 10 years, Australia introduced the ability to consolidate pensions and because the Australian tax office is aware of the different pension plans available, an individual can consolidate “very quickly and effectively” through a providers portal.
Hawkins added: “This has allowed people to take more control and it’s allowed them to understand more about what’s happening with their money.
"This is because in recent years Australia has also introduced the ability for an individual to tell their employer which provider they would like contributions to be made to and this gets done automatically.”
In his Autumn Statement speech chancellor Jeremy Hunt announced he would consult on “giving savers a legal right to require a new employer to pay pension contributions into their existing pension pot if they choose”.
Speaking at the time, Claire Trott, divisional director for retirement and holistic planning at St James's Place, said: "The devil will be in the detail here, but it could be a real admin headache for employers when we only just have automatic enrolment all settled in nicely.”
Managing pension pots better
Hawkins said an area where the UK pensions system could improve is managing pension pots better.
“Things like what we’re seeing with the pensions dashboard where people have the ability to see their pensions all in one place will help people to make better contextual evaluations and then can choose whether they want to make changes or not,” said Hawkins.
He also pointed out the time pension transfers take to happen could also be an area that needs focus in the UK.
He added: “In Australia they have something similar to a parcel tracking system where the individual can track the progress of their transfer and know exactly where it is, so in the UK it would be good to see pension transfers between workplace schemes become easier.
“Administrators would still need to do their due diligence but if the pension provider an individual wants to transfer to is of a good enough quality and they meet the correct criteria then you should be able to do the transfer in one or two days.”
A notable thing that has worked well in Australia is the implementation of a ‘superstream’ which collects all the contributions from employers and then matches that up with the correct pension account.
If there isn’t a pension account the system knows what the employer's default provider is and automatically creates a new account with that provider.
Hawkins said: “That infrastructure of taking those contributions and making sure they end up in the right place is the gap we have got to fill in the UK.”
Hawkins added because a customer has the choice to stay with the same provider their whole life there is more of a fight from providers to keep their customers’ loyalty, therefore, in Australia, providers offer additional benefits such as offering digital advice.
Stability needed from next UK government
In the Autumn Statement, chancellor Jeremy Hunt announced various pension reforms with the Labour party also announcing this week (January 31) it would launch a review into pension and retirement savings if elected.
With pension reforms likely to be one of the big topics to be discussed in the run up to the general election, Hawkins said whichever government is elected, there needs to be more stability implemented into the UK pension system.
He said: “We have seen over the last 10 years that changes to pensions have caused some absolute horrors in the industry because they have not been thought through properly and not understood from a practical perspective.”
Hawkins suggested that a non-political committee could be a way to control and influence what is happening in the pensions space.
“The key thing for the next government is to stop tinkering and actually put some long term planning in place and stop trying to change things overnight because this can cause unexpected consequences for the industry and clients.”
alina.khan@ft.com
