PLSA Chair Richard Butcher sends an update from the first day of the ASFA conference in Australia.
I made the huge tactical error of coming to Australia in the week of my birthday. Instead of nurturing 52 for as long as I could, I arrived at 53 13 hours earlier than I should have done. Still, on the plus side at least I’ll have a new brain teaser for the kids/grandkids; “why was I 52 for less than a year?”
On the other plus side I also got to go to the conference of the Association of Superannuation Funds of Australia (ASFA) - the PLSA’s antipodean cousin.
Aus is often held out as an exemplar to we Brits. High levels of contributions, compulsory membership, scale and good governance combine with other features to give them a consistently high ranking in the Mercer scale of world pension systems. They also have great weather.
But what I learnt, in day one of the conference is that there are flaws in their system and, surprisingly, many of them are the same flaws we are grappling with.
First some facts. The Aussie system has around A$2.7tn (around £1.5tn) of assets floating about in it. This is, of course, much less than the UK system - however, Aus has only 25m people (compared to the UKs 65m) and only 10m of them are workers (20m in the UK) - the others being “seniors” (i.e. the retired) or children. That said, despite the impression that the Supers (essentially master trusts) dominate, only around 1/3 of that asset base is found in them (the rest is public sector or private saving). The average fund size is A$112k (£62k) for a man and A$58k (£32k) for a woman - roughly double the typical retirement pot size in the UK but still not enough to fund an adequate retirement income. In addition, the Age Pension (their equivalent to the state pension) is means tested - so its not payable in addition.
So where are the similarities?
Well, for a starter, the inadequate savings levels. ASFA, like the PLSA is campaigning to have the current 9.5% contribution increased to 12% (the same number the PLSA advocated in its Hitting the Target report), this being the number they say is needed using realistic economic and demographic assumptions.
Second is, surprisingly, scale. The A$800-A$900bn in Supers is spread around 130 funds - an average fund size of £6.5bn - however, as some of the big beasts have more than A$100bn and one or two more than A$150bn, there must be some very small Supers out there. Currently TPR estimates they’ll be around 50-60 UK master trusts going through the authorisation process this/next year - so less than half the number that will, eventually, have twice the volume in assets. As a result, in AUS, there is pressure to consolidate.
Then there’s the Royal Commission in Aus, which has reached interim report stage. While not yet making any recommendations the commission is very critical of the industry: “too many snouts in the trough” and too little cost transparency - themes that resonate in the UK in the CMA review and the work of the newly launched CTI (taking over from the FCA’s IDWG). The Government even goes as far as to talk about “theft of the member’s future” and is legislating to increase both transparency and prudential regulation.
Finally, there’s trust. Compulsion forces the saver in, but that doesn’t mean they like it and a lack of trust means they’ll not engage and not save more. A survey carried out after the Royal Commission showed an increase in mistrust. ASFA and its members are now grappling with that and it showed in the speakers at their conference.
All of that said, there is a sense of optimism at the conference - and yes, systemically the Aus system is in a good place. It just needs more work.
More from day 2 tomorrow.