GLOBAL - After Australia beat England at soccer, cricket, tennis and rugby, morale in England has not been helped by claims that the UK pension system is 12 years behind Australia in terms of its development and sophistication.
And to top it off, the Australians claim that there is nothing worth learning from the UK market.
The already-under-fire UK pensions industry has taken another blow, this time from a leading Australian politician in an exclusive interview given to Global Pensions.
Until 15 years ago the Australian and UK retirement income systems were similar, but in 1987 Australia introduced compulsory second-tier private superannuation contributions. This has led to far higher retirement income levels in Australia than in the UK.
“The UK is about 12 years behind where we are in terms of the structure and the level of retirement incomes our retirement system produces. The UK is now a long way behind us in my view,” said senator Nick Sherry, the Labor minister for retirement incomes and savings in Australia.
Sherry, who has recently undertaken a trip to the UK and Switzerland to examine whether either country had any policy areas that could be implemented in Australia, said of the trip to the UK: “Whether there was anything of use to us in terms of developing the Australian system, anything of use in terms of new policy and any new developments that we could adapt and pick up for Australia, I have to say there was not a lot – other than bad news.
“I have to say I was generally asked more questions about what we have done in Australia.”
He added that Australia has not had the same level of pensions scandals as the UK has, and consequently there is a lot more trust in the system.
Defined benefit closures are not as controversial in Australia, as there is a compulsory minimum 9% employer contribution and, unlike the UK, contribution levels in defined contribution schemes are the same.
Sherry also said Australia has a system in place for compensation if a Maxwell-style fraud occurs.
“The entire industry is levied, and the monies are put back into the fund. The compensation level is 80%, although I believe it should be 100%. I accept that there has been an increased level of concern. Is it to the extent that it has undermined confidence in the system? I would say not.”
He was more positive about the Swiss market, however, noting that he admired the Swiss system of automatic consolidation if an employee changes employer.
“We don’t have that in the Australian system, and one of the weaknesses in the Australian system – and I admit to weaknesses – is that we have a proliferation of accounts.
“We have 23 million accounts for nine million fund members. In Switzerland you have to transfer your money from one fund to the next.”
But the Swiss did not escape criticism: “In Switzerland I found the system under very significant pressure because it is generally accumulation [defined contribution plans], but the state guarantees a return at 4%.
“The government also guarantees the conversion rate from your lump sum accumulation to your pension income stream at 7%, and because of the low equity market returns in Switzerland the only way you can have a guarantee with a minimum rate of return in a largely accumulation system is to have significant reserving to pay for the years where your returns don’t meet the statutory minimum rate of return.
“In Switzerland the funds have run out of money and can’t pay the minimum rate of returns, so the government has had to reduce the rate from 4% to 3.25%. And the other problem they face is that with their minimum conversion rate of 7% they ar
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