Improving fairness, getting savers to boost their contributions and ensuring members have the right strategies in place post retirement are among the main challenges facing Australia, South Africa, the US and Ireland. Representatives from these countries tell the audience at Workplace Pensions Live what the UK can learn from these experiences.
Fairness is the key issue for Australia’s Superannuation system, says Dianne Day, client director at Independent Trustee Services. Questions being asked about the system include whether the government obtains value for money by providing tax relief for its members and what the purpose of superannuation is. Limiting tax breaks for higher income earners to create a more equitable structure is meanwhile a key concern of the Australian government, much like in the UK, says Day.
South Africa is examining the failures that have come about due to the transition from DB to DC schemes, and how to improve retirement outcomes by ensuring enough money is paid in to pension pots, as well as the fair treatment of consumers, says Kobus Hanekom, head of strategy, governance and compliance at Simeka Consultants and Actuaries.
Similarly in the US, there is a concern about making sure enough capital is accumulated to support individuals through their retirement, and the state is grappling with how to encourage people to do this, says Steve Charlton, defined contribution proposition manager for Europe at Vanguard Asset Management.
Meanwhile in Ireland, since scheme members have had the drawdown option for longer than they have in the UK, tailoring lifestyle strategies according to individual needs has become the main area of focus, according to Jerry Moriarty, vice chair of PensionsEurope.
Is 8% enough?
In the UK, debate has begun to centre around whether a minimum contribution of 8% through auto enrolment is an adequate level of saving to generate a decent retirement income. Asked whether the panel thought this was enough, Day responds: “there is a danger of not seizing the opportunity and going hard early; soft compulsion creates a danger of giving the message 8% is enough.” In turn, this takes the sense of ownership and responsibility out of an individual’s hands. It is therefore important to encourage additional voluntary contributions, says Day.
“If you tell people 8% is the right number, then 8% is what they’ll pay.”
Charlton agrees that setting a minimum contribution rate of 8% could lead to a degree of complacency. “If you tell people 8% is the right number, then 8% is what they’ll pay.”
There is also a question as to what level is deemed adequate under a range of different salaries, says Charlton. The further an individual moves away from what may be regarded as a modest salary, a gap emerges between their definition of adequacy and what is provided through the state, he adds.
Irish employers are becoming ‘quite generous’ in response to the issue of adequacy, because they do not necessarily want employees to continue working but recognise they might do so if their retirement pot is not sufficient, says Moriarty.
In South Africa, most corporates seek a fresh flow of talent and can compel employees to retire at 60, though it is not compulsory to buy an annuity, says Hanekom. In reality, the average retirement age is 63—though that has dropped down from 65—as people do not save enough, he adds.
In anticipation of this challenge, the US sees services provided to help individuals build the right portfolio and income stream for them, with some of these services being delivered face-to-face, and a newer trend emerging towards robo-based advice, according to Charlton.
Australia’s Superannuation System meanwhile includes an email alert that informs individuals as to the status of their retirement savings and where they are on that journey, helping to create awareness and a sense of ownership, Day, who uses the system herself, tells the audience.