There were stark warnings at Corporate Adviser’s virtual Master Trust and GPP conference today that following Australia’s pension system and allowing access to pension pots at an earlier age could see many people exhausting their funds.
TOR Financial consulting MD David Harris said these problems have been highlighted in the Australian pensions market, which has allowed savers to release funds for house purchase over the past two years, and more recently for emergency Covid funds.
Harris says this has resulted in £30bn being withdrawn from the Australian ‘super’ funds in a matter of months – and not all of it has been used for hardship payments.
Withdrawals have been disproportionately made by under 30s, and in particular younger women, he says.
Harris says he thought it was likely the UK government would follow this route, but says it is likely to have negative consequences for savers. He said: “If people think the government is not considering release of benefits after the financial difficulties caused by the pandemic then they have their head in the sand.”
Harris gave the delegates attending the virtual summit an overview of the Australian DC pension market, widely seen as being an indication of where the UK pensions market is heading.
He pointed out that this market is now worth £1.61 trillion, with nine out of 10 employees pension being in master trust structures. He says that there are now just 27 employers who have in-house scheme in Australia.
He says: “Size clearly matters. Smaller providers have to merge to survive.” This can be reflected in figures that show a decline in the number of providers, both retail and not-for-profit, but a concentration of assets in these latter trust structures.
Harris pointed out that many of these not-for-profit funds have diversified into infrastructure, with 14.2 per cent of the total asset pool now in this sector. Australian pension scheme now own many infrastructure assets in the UK, Europe and North America. This includes stakes in Manchester Airport and the Kings Cross redevelopment programme. People using these services are simply helping enrich Australian savers, he pointed out.
However he says that Australia has not imposed a charge cap making it easier for these schemes to diversify and innovate in a low interest low return economic environment.
Harris points out that Australian schemes are focusing more on ESG strategies and issues. But he warned that there were “litigation risks” when it came to greater adoption of ESG strategies.
He says the lessons from the US was that there could be litigation if scheme did not invest in assets that maximised returns for member, regardless of their environmental impact.
Harris also pointed out that the main challenge for Australian master trust was keeping members beyond retirement. He pointed out there Australian pension savers were “embracing an annuity culture”, unlike the UK which has moved away from this in favour of pension freedoms.
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