SYDNEY, NSW - JANUARY 26: Revellers have a barbeque on Coogee beach on Australia Day January 26, 2006 in Sydney, Australia. Australians all over the country will today celebrate Australia Day. (Photo by Ian Waldie/Getty Images)
Talk around the barbecue often turns to retirement funds in Australia © Getty

Stunning beaches, superb weather and, ahem, a good performance by the Aussie cricket team proved strong distractions on a recent trip Down Under to visit family.

But it wasn’t too long before the topic of conversation around the barbecue turned to pensions.

“You say what?” exclaimed my sister.

“No way!” said my 72-year-old mother.

I was explaining how much many workers in the UK were setting aside for their retirement, currently less than a quarter of what the average Aussie workplace saver puts away.

Pension saving is baked into the Australian psyche and many people can tell you exactly how much is paid into their retirement accounts each month.

This is thanks to the “superannuation guarantee”, which for 25 years has seen employers forced to make contributions into “super”, or a retirement account, on behalf of workers who qualify.

Currently, employers are required to make super contributions of 9.5 per cent of their workers’ gross earnings.

This contrasts with the combined 2 per cent being paid into UK workers’ retirement pots by both employees and employers, though these minimum contributions are to rise to 5 per cent in April this year and 8 per cent next year and many UK employers are far more generous with their payments.

“Crikey,” said my uncle. “That’s still not enough!”

As the snaggers (sausages) sizzled on the barbecue, the chat turned to other aspects of the Australian and UK retirement systems.

You may think this is an unusual conversation at a family reunion. But it’s not just my professional interest which kept the conversation going. Australians are not shy about talking about their super. In fact, they can get positively competitive about how well their pensions pot is doing.

This is largely due to the fact they have choice over where their super is invested and do not have to stay with the fund chosen by their employer, a feature of the UK system which sees billions languishing in poorly performing “dog” default funds.

There are many comparison websites that allow investors to rate their super on a range of measures from charges and investments options to insurance and death cover. Newspapers frequently publish league tables of the best-performing super funds, with the top 10 accounts achieving over 10 per cent, net of investment fees, in 2017.

This generates a culture of competitiveness between super funds in a way which is yet to be seen in the UK workplace pension market.

However, even with this choice, most Australians will not shift their super out of the fund chosen by their employer, with a chief concern that it may be difficult to re-broke insurance or income protection attached to their super accounts (particularly if they are older have developed ailments).

With all this chat about fund performance, it wasn’t long before my sister retrieved her latest super statement, showing how well her fund had grown over the past five years. She keeps a very close eye on her investments, but her fund — one of largest in the country — is proactive about keeping members engaged with their savings.

Her fund runs retirement planning seminars in the workplace but also offers a phone service where, for a fee of A$365 (£260), members can review their investments and contribution levels with the help of a consultant from the fund.

Most people know that relying on 9.5 per cent contributions from their employer will not be enough to allow them to retire when they want and top up their savings with voluntary contributions.

These over-the-phone sessions are not financial planning, and do not consider options outside the fund, but no one has got their knickers in a twist about calling them “advice” — a hot issue in the UK. Those wanting to consider wider options can seek an external adviser.

At this point, even my 18-year-old niece began talking about her two super accounts. Teenagers aren’t excluded from superannuation, as long as they earn more than $450, or about £260 a month, and work more than 30 hours per week.

Starting early with her savings is very important to my niece as she is sceptical about whether the “Age Pension” — Australia’s state pension — will be around when she retires. Quite understandably too, since the country has a far more aggressive timetable to increase its state pension age than the UK: it is proposing to jack up the qualifying age from the current 65 to 70 by the mid-2030s, decades ahead of the UK.

While the superannuation system gives Aussies much to crow about, many older family members were impressed by the simplicity of the UK’s state pension system. Australia’s equivalent is means-tested, and a gradual tightening of the assets test has created a climate of uncertainty and frustration for pensioners and unretired savers.

A particularly egregious feature of the system requires pensioners to report to the authorities if they travel overseas for more than six weeks — something that may cause their pension to be reduced. Speak to many Australian pensioners and they will say this is a “bloody pain in the ar*e”.

As the barbecue flames died down, it became apparent that both countries might do well to talk less about cricket rivalries and more about what could be learned from each other’s pension systems.

Josephine Cumbo is the FT’s pensions correspondent. Email: josephine.cumbo@ft.com Twitter: @JosephineCumbo

Get alerts on Pension automatic enrolment when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article