Jeremy Cooper, former Chair of Australia’s ‘Cooper Review’ into superannuation, joined Colin Tipping, director of unit linked investments at Friends Life and Colin Williams, managing director of corporate benefits at Friends Life for a thought leadership debate about the challenges of default investments and administration design for successful pension reforms on this week (Tuesday 20 September).
Jeremy Cooper, who is chairman of retirement income, at Australian annuity and retirement income provider Challenger Limited, and who has previously held the role of deputy chairman of Australia’s Securities and Investment Commission, was guest speaker at the Friends Life Global Forum. This regular event hosted by Friends Life brings together leading industry commentators, senior managers, employers and employee benefit consultants to discuss current challenges and new ideas from the industry. At the Friends Life Global Forum, Jeremy Cooper gave an update on the Australian superannuation model, the launch of the new ‘My Super’ account and debated learnings from the review he carried out.
On the issue of governance, Jeremy Cooper explained that 80% of Australians are opting to take the default superannuation option, with only one in five regularly taking advice on their pension options and making individual investment decisions. He explained that in light of this the new ‘My Super’ account, to be launched in 2013, would improve the standards of these default funds, increasing transparency, adding to the duties of trustees and focussing on outcomes not just accumulation to ensure that members receive the best possible return from their investment.
Jeremy Cooper also suggested that efficiency was a key area of Australian Federal Government interest in superannuation reform given its compulsory nature, and suggested it could be top consideration for the UK when auto-enrolment begins. He explained that pensions were a scale game, and although the economies of scale were not linear, larger funds were likely to experience greater efficiencies to the benefit of members with investments in these rather than smaller schemes. It is estimated that inefficiencies and errors in processing are currently costing the equivalent of an additional 1% of contributions in Australia.
On the issue of small pots, Jeremy Cooper explained that superannuation has resulted in the average working person having around three pension ‘pots’, adding to administration inefficiencies and meaning members often undervalue their savings as only when consolidated can they visualise how meaningful the amount they have accumulated is. The solution is to launch auto-consolidation, he said, whereby pots under a certain size would be automatically rolled into newer or larger pots as members start new accounts.
Colin Williams, managing director of corporate benefits at Friends Life commented:
"Understanding the Australian superannuation model is very useful in thinking ahead to some of the issues the industry might encounter when auto-enrolment begins in the UK. Whilst there are some key differences between superannuation and auto-enrolment the underlying goals of galvanizing retirement savings are the same and it’s interesting to understand that issues of governance and efficiency are being reviewed in light of a continuing lack of public engagement."
Contributing a provider's perspective to the discussion, Colin Williams suggested that lack of engagement is likely to continue in the UK:
"7 million people currently don’t save anything towards their retirement and another 7 million are under saving. Whilst auto-enrolment will provide a nudge, it will not magically engage UK consumers, and as an industry this is something we need to continue working to do, through technology innovations, education and a focus on the outcome of savings."
On the concept of small pots, Colin Williams said:
"Small pots are already an issue and are a problem that is likely to proliferate as auto-enrolment is introduced. We desperately need a solution to enable a simple and straightforward consolidation of funds, to make management easier for the member and to enable efficiencies and competitive pricing for providers. A concept like auto-consolidation is something we should seriously consider as an industry and is certainly a principle that Friends Life would support."
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