(pictured: Andrew Brown)
Australia is far from alone in not yet being able to deliver sufficient savings through our workplace super system to allow the average person to retire on his or her savings. A global study shows how the major countries compare with their funds’ investment strategies.
The London-based Defined Contribution Investment Forum, which has 14 global fund manager members including Australia’s Colonial First State, published its fifth research paper on the global DC market last week.
The DCIF commissioned Tor Financial Consulting, run by Australian consultant David Harris, to better understand DC plan investment design in five markets – the US, Australia, New Zealand, South Africa and Chile – and how the UK can learn from their experiences. Challenger’s Jeremy Cooper also contributed research. The paper, entitled ‘Global Comparisons of DC Plan Investment Design’, examined the main investment products and savings vehicles used and the outcomes achieved for individuals.
The report shows that growth in employer-sponsored DC plans has been the predominant outcome of pension reform. Countries where DC workplace pensions have been installed – either by compulsion of auto-enrolment – have built huge retirement savings capital.
However, the report says, this capital has not necessarily translated into sustainable lifelong incomes. This means that globally, governments have not solved the problem that they set out to solve; to alleviate the longevity burden that is being placed on the state and, indirectly, on employers.
One of the trends highlighted is that advice and guidance are not being bought or sought, despite the increase in choice available to savers. There has been interest in robo-advice (automated generic guidance), especially in the US and Australia, as a mechanism for delivering low-cost advice and engaging with plan members and retirees.
Increasingly, defaults are being used to bridge the gap between uninformed consumers and sophisticated financial markets and default investment funds continue to be the recipient of most savers’ contributions.
The report shows that target-date funds have surged in popularity in the US, partly because of regulatory intervention, and are being examined in South Africa and Australia.
Meanwhile, Australia and the US are embracing alternative investments such as infrastructure in an attempt to invest in higher return-generating assets which are geared towards long-term investors. The report’s authors predict that the UK will move in a similar direction.
Commenting on the research findings, Andrew Brown, DCIF chair, said: “The report shows that countries across the world are placing even greater emphasis on private pension provision than ever before. However, it is clear is that although members are amassing savings, this is not always translating into the ultimate goal of comfortable, well-funded retirements.
“As a result of this failure to plan for long-term requirements the next big shift has to be to persuade retirees to engage with their retirement savings and be prudent when turning savings into retirement income. Successful drawdown will require retirees to manage a dwindling resource in a complex and volatile environment…”