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We are six months out from the start of the fifth and final Ashes test series at The Oval this year (27th July) – a hotly anticipated (and somewhat vexed!) topic at Bravura to say the least.  So, in the spirit of healthy competition, we are celebrating and pitting our rich, 30+ years heritage in the Aussie Superannuation market against the pensions landscape in the UK – which is currently undergoing huge transformative change.

Helping us better understand how each market operates, we caught up with Jason Tong, Product & Propositions Director based in Australia, and Jonathan Hawkins, Principal Consultant & Pensions Specialist from the UK and life-long cricket fan, to undercover how each country approaches “saving for retirement” to compare and contrast and see how we can look to reimagine the sector.

Turning first to the UK. Although the UK has had pensions in one form or another since at least the 1100s, the first legislation was in 1908 (when The Old Age Pensions Act was passed), and it has grown into a hugely complex industry and one which very few individuals fully understand.

This history brings with it a huge amount of legacy technology, which in itself can cause big issues for providers, schemes and third-party administrators, who are constantly battling against old and clunky systems – driving up cost and creating less value for savers.

One of the most impactful pieces of pensions legislation to come out of the UK in recent years has been auto-enrolment (AE). This legislation – introduced in 2012 – effectively mandated that every employee would be automatically enrolled into a workplace pension, and moreover, their employer would make financial contributions.

The aim was simple: to reduce the reliance on the State pension by ensuring every adult of working age was building up a personal pension pot ahead of retirement. Enrolment is automatic, but individuals can decide to opt-out, should they prefer.

Australia has a very similar process, having introduced Superannuation – the equivalent to auto-enrolment – in 1992, some 20 years before AE. As part of this, employers contribute to an employee’s super fund. Initially contribution was set at 3%, but this has gradually increased to 11% as of this coming July (2023).

Whilst there are several similarities between the two, Australia has the unique advantage of not being weighed down by more than 100 years of legacy, and it had the first-mover advantage due to implementing its compulsion system two decades ahead of the UK.

This brings various real-life benefits to Australians, most notably the fact that they are less likely to lose inactive and small pots thanks to sweeping – which automatically transfers inactive, low-balance super accounts (or pension pots) into their highest balance super on their behalf (a much talked about, but yet to be realised, a process sometimes known as “pot follows member” in the UK).

In Australia, they also have “stapling”, where workers will automatically stay with their existing super fund when changing jobs unless they actively choose a new fund when they move jobs.

Aussies 1 – 0 Brits

In the UK, tracking deferred pension pots (think old workplace pensions you have long forgotten existed) is a key challenge.

The latest estimates suggest that there are believed to be a whopping £26.6bn of these lost pension pots just in the UK. This is something that the UK’s Pensions Dashboards Programme (PDP) is looking to solve, by giving individuals the ability to locate lost pensions – be they occupational, personal, stakeholder and State – and view them all in one place.

This transformative change is expected to cause more people to engage with their retirement planning in the UK – with research from the Association of British Insurers (ABI) stating that more than half of UK savers are expected to use dashboards when they are launched to the public – something which is set to dramatically impact the advice sector.

The future of advice is a big talking point globally, with both the UK and Australia grappling with a low amount of advisers (roughly one adviser per 1,600 people in Australia and only one per 2,500 in the UK). With the cost of advice only increasing in the UK due to the heightened regulatory burden – from both the FCA (Financial Conduct Authority) and The Pensions Regulator (TPR) – large numbers of individuals aren’t able to afford advice and rely on guidance and this has created a huge gap in the market with many people currently being underserved.

Although regulation is inherently a good thing, Jonathan argues that UK regulators can be too concerned with guarding and protecting against harms and that creates the potential to stifle innovation. There’s also the upcoming Consumer Duty and, according to Jonathan, this is really rocking some of the legacy providers, as there are lots of dark and murky corners that will come to light thanks to dashboards and legacy providers will have to adapt to retain assets.

Jason agrees, believing there is a similar dynamic at play in Australia. He noted that in the 30 years since Superannuation was introduced, the whole market has been laser focused on one goal – accumulation (the building up of retirement savings).

But, as the country’s aging population moves towards decumulation (otherwise known as reaching preservation age in Australia or nearing retirement age in the UK), this is expected to cause a number of macro issues which the industry isn’t ready for, according to Jason.

The sheer scale of the task at hand, with millions of Australians expected to begin decumulating in the coming years, means the Australian Superannuation sector needs to invest in making sure compelling and effective retirement products are available to accelerate and streamline the process.

Both agree that technology-based solutions are crucial in delivering meaningful advice at scale to members when they need it. The key thing for Jason is that advice needs to be actionable. He mentioned the recent partnership Bravura has entered with Aware Super in Australia as a great way to demonstrate best practice in automating digitally delivered advice (once consent is given). The solution enables providers to execute advice in a more efficient manager, without the need to re-key and other manual-intensive processes that have been around for a number of years. 

Aussies 2 – 0 Brits

Jason also points out another key difference between Australia and the UK – the fact that individuals can take all their super out in one lump sum when they reach preservation age – tax-free (although taxed at point of saving).

In the UK, we have the Pensions Freedoms legislation, meaning individuals can draw down their pension up to 20 years before the State Pension Age in the UK (currently 66 years old for both men and women) – although crucially this is subject to tax in the UK. On the flip side, although drawing down a lump sum is tax-free in Australia, individuals actually get charged for leaving a certain amount of funds in their pensions to combat tax avoidance and unfair wealth accumulation.

In the UK, Jonathan believes back-end pension administrative operations are not fit for purpose and will hugely benefit from prioritising innovation and digitalisation to help build value for the individual. The aforementioned Pensions Dashboards are a great step towards this, but more work needs to be done in helping customers understand their pensions and this involves both communication and advice and joining up systems and user journeys to make processes efficient and fit for the future.

Aussies 3 – 0 Brits 

Another win for Australia, it’s not looking good for the UK – despite, or perhaps, because of its rich heritage which has created an enormously complicated landscape.

So, when it comes down to what Jonathan and Jason would like to keep, swap or chuck from their current industry – it’s clear the UK is a lot more envious of the Australian approach.

Whilst Jonathan believes auto-enrollment and the broad aims of the UK approach to pensions – helping to empower individuals through pensions dashboards – are to be applauded, there were far more features he’d like to see from Australia than Jason would like to take from the UK. Things he’d like to chuck include the UK’s legacy technology, as well as its often innovation-limiting approach to protecting consumers from ‘harm’ and having two separate regulators, which can all too often divide and confuse as opposed to unite the industry.

But what would he like to see us adopt from our teams down under? Sweeping and stapling are great processes and one that could hugely benefit to savers, as well as advisers. He’d also like to see Workplace pensions offer inclusive life insurance like they do in Australia as this could be a huge benefit for people, particularly in the face of rising household outgoings and this growing protection gap.

Aussies 4 – 0 Brits

Jason for his part, is proud of Australia’s focus on members interest tests, with trustees of Superannuation funds only having one obligation: to act as the best interest of the member. It also has a simpler journey for savers and its messaging gateway SuperStream is a brilliant piece of technology, according to Jason, as it enables quick and easy transfers between funds – something which can be a long and drawn-out process in the UK.  He also noted the huge amount of good super funds are bringing through ethical investments practices, with many of the major providers having more than £100bn (AUS) at their disposal to invest in renewable energy and other ESG-focused schemes, something he sees as being able to do a huge amount of good.

But is there anything Jason would like to see from the UK? Apart from its 100+ years heritage, which he finds hilariously complex – nothing!

Aussies 5 – 0 Brits – it’s a clean sweep for Australia!

It’s clear that whilst the UK is making great strides in catching up with Australia, the team down under have the most enviable pensions set up, which is in part driven by clever and intuitive software solutions which are unincumbered by heavy regulation that has the potential to suffocate rather than breathe new life into the industry.

At Bravura, we’re experts in reimagining what’s possible through the art of innovative software design. Our rich history in both markets and across the globe makes us the perfect partner to redefine the approach to pensions, helping to streamline back-end operations, reduce costs and center outputs on the needs of individuals and advisers.

Find out how we can help by getting in touch with our teams today: [email protected]

Sources:

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