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06

UK 'should learn from Australian mandatory enrolment'

Open-access content Thursday 6th June 2013 — updated 5.13pm, Wednesday 29th April 2020

The UK could learn a great deal from Australia’s 20-year experience of mandatory enrolment of pensions, an influential international academic has said.

2

Professor Susan Thorp, chair of finance and superannuation at Sydney's University of Technology, told the Institute and Faculty of Actuaries' Pensions Conference 2013 that the Australian system had led to a huge expansion in pensions coverage.

However, employees were often unaware that they had accounts, it was difficult for employers to keep track of scheme members and members' knowledge of investment strategies was limited.

Looking at the potential for the UK, she said: '[Auto-enrolment] will eventually create substantial savings most likely and relieve some pressure on government revenues, which is what we have observed in Australia. The thing that it won't do is create competition or efficiency.

'In fact, it will probably lead to the reverse unless it is carefully controlled and people take an interest in designing systems that actually improve efficiency and competition.'

She added that Australia's mandatory saving system presented a 'huge temptation' to a government. 'In Australia, the system has been tinkered with at every Budget since it was introduced and the level of complexity is awesome.'

Australia's system has been in place since 1992. It is distinct from the UK system, in that employees cannot opt out unless they earn less than AUS$450 a month.

Speaking to the Actuary after her speech, Thorp said that an 'eagle-eye' needed to be kept on efficiency.

'People are not well informed, they are not terribly financially literate or even very interested, and so there is a potential to manipulate the inertia of the membership to the advantage of the financial sector rather than to the advantage of the member.'

In the same session at the conference, held in Newport, Wales, Phil Simmance, senior international benefits consultant at Towers Watson, told the audience that the UK's auto enrolment approach was a rare phenomenon.

Only one other country, New Zealand, currently has a system of auto-enrolment. One other nation, Ireland, is considering introducing such a system.

This article appeared in our June 2013 issue of The Actuary.
Click here to view this issue
Filed in:
06
Topics:
Pensions

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