Aussie lessons for your scheme's post-Budget strategy

Pauline Vamos, chief executive officer at the association, told delegates the UK pensions industry should not be scared of the increased at-retirement choice now offered to defined contribution members.

The biggest risk to any system is not so much people doing the wrong thing by [themselves] but the advisers that get hold of them and steer them in the wrong direction

Pauline Vamos, ASFA

However, industry experts in the UK have warned that further clarity on the government's guidance guarantee was needed. “[Australia has] choice pre and post-retirement; yes our system is compulsory which gives us a bit of a leg up, but in terms of where you put your money both pre and post-retirement, it is entirely up to you,” said Vamos.

Two-thirds of AUS$1.6tn (£881bn) in the superannuation system is in pre-retirement money, with a third allocated to post-retirement.

However the amount of money in post-retirement funds will increase over the next few years, Vamos said.

Despite the fact members can take their post-retirement money as a lump sum, "a large proportion" of money stays in the system.

“What we have found is the biggest risk to any system is not so much people doing the wrong thing by [themselves] but the advisers that get hold of them and steer them in the wrong direction,” said Vamos.

Outside of MySuper, the default fund for the Australian superannuation system, more than 60 per cent of people engage in some form of investment decision.

“Yes, some of them start at the wrong time in the market cycle but most tend to do the right thing – it’s active, informed choice,” said Vamos.

For the first time last year more money was paid out of the system in income streams than in lump sums, Vamos told delegates.

As account balances rise, more people are expected to look at taking their pension as an income stream rather than as a lump sum.

Individuals with a pot of AUS$100,000 on average takes an income stream in some part, she said, and account balances of less than AUS$50,000 at retirement are "almost all the time" taken as a lump sum.

Over the next few years Australia will review its regulations to allow greater innovation in retirement income streams so the risk can be shared between members and trustees.

“The idea is for the money to stay in the system; by staying in the system it is regulated and looked after by trustees. You’ve got diversity of investment, so it can be invested in the economy,” she said.

However Otto Thoresen, director general of the Association of British Insurers, said the industry needed much further clarity from the Treasury in order to prepare for the changes due to come into effect next April.

“As a result of that what we’re facing at the moment there is actually an increasing expectation because of the media engagement of government, which has realised the Budget reforms were a huge winner. So you have the recycling of the messaging again this week which has us all the way down to a pensions bank account,” he said.