John Greaves and Julia Newbould

The UK pension system still has some way to go if it wants to match the healthy level of accumulation the Australian superannuation market has achieved. However, concern that introducing compulsory contributions could be viewed as a tax on businesses remains a big hurdle in the UK government’s consideration of raising contributions or making them compulsory. 

John Greaves, head of investment strategy and research at the £34 billion (A$65 billion) UK multi-client fund Railpen, said the UK’s pension contribution rate currently sits at eight per cent, with five per cent coming from employees and three per cent from employers. Greaves conceded that it’s a long way behind the Superannuation Guarantee (SG) level.  

“It [the contribution] is optional, it’s not a guarantee. I think there are soundings from government, and they’d like to increase that over time,” he told the Fiduciary Investors Symposium in Healesville, Victoria.  

“But obviously we want to be seen as a very attractive country to list a company, so just very conscious of the implicit tax that puts on them.” 

Greaves lamented that the country has seen many good pension ministers over the years, and “sadly, the Treasury just poached our last one,” referring to Laura Trott, who during her time authorised UK’s first collective defined contribution (CDC) scheme. 

Not envious of YFYS

Australia’s $3.5 trillion superannuation assets make up a lucrative capital pool for the government. Earlier this year, Treasurer Jim Chalmers referred to the system as a “wonderful thing” that can serve the dual purpose of returns and social impact, through areas such as aged care, energy transition and defence.  

Greaves spoke of a similar sentiment in the UK, with the government giving pension schemes a big push to invest in so-called “productive finance assets”. There are varying definitions, but UK’s central bank explained it as “investment that expands productive capacity”, such as plant and equipment, research and development, technology, infrastructure and unlisted equities. 

On top of the member return and diversification benefits this may bring, Greaves said there is also a national interest angle. 

“There’s a sense that a lot of UK businesses have been listing elsewhere in the world,” he said. “We have a lot of universities, we do create a lot of innovative companies, but then they do tend to spin out and go somewhere else. So it’s hoped that this will help retain some of that intellectual capital, as it were, in the UK.” 

Despite the many attractions of the Australian defined contribution system, Greaves said he was “not envious” of the peer comparison pressure that Australian super funds are under, largely stemming from the Your Future Your Super test, and the relative performance focus it creates.  

While admitting that it’s a natural response in a competitive market to want to weed out underperforming funds, he said the regulation lays extra pressure on fund boards and other stakeholders. While the outcomes of Australian funds are more member-focused, Railpen’s are more employer-centric.  

“Any performance measure that takes you away from your core objective, which is obviously relative performance, either to a peer or to a benchmark, does in a way have the potential for unintended consequences,” he said. 

“We really try and shy away from that. We do a once-a-year review of how have other funds done, but it’s very much part of the storytelling. No one’s obsessing over 10 basis points here and 10 basis points there.” 

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