AMNT: Oz-style 'supers' could emerge from latest UK reforms

The government’s reforms announced in the Budget centred on giving freedom to individuals to remain invested beyond retirement or to take some or all of their pot as cash. This has led to providers seeking to launch drawdown products.

However, this was followed last week with confirmation that the government will also push ahead with plans for collectivised forms of saving, known as defined ambition.

Barry Parr, co-chair at the AMNT, and a contributor to the Department for Work and Pensions’ working groups on defined ambition, said the need for a to-and-through retirement option for DC members will encourage the “further rationalisation” of schemes and provide an opportunity for UK versions of ‘supers’ to emerge, similar to the superannuation funds seen in Australia.

“As it happens, [supers] in turn may also befit the emergence of CDC schemes as announced in the Queen's speech,” he added.

Over the past 10 years, Australia has reduced the number of supers from 3,500 to around 360. In contrast, the UK has several thousand DC schemes currently in operation.

As it happens, [supers] in turn may also befit the emergence of CDC schemes as announced in the Queen's speech

Barry Parr, AMNT

Under the Australian model, members select the fund into which employers pay contributions and this account then follows the member from job to job, a set-up Parr said might benefit the UK system further down the line.

The reforms also raised questions about the future role of an employer-sponsored trust, especially when that employer is the last in a member’s career, Parr said.

“Although trustees will always be keen to do the right thing for members, many trusts will not be able to offer a full post-retirement offering and hence the inevitable push towards the supers,” he said.

“I think the journey to supers or their UK equivalent will be steady but progressive,” he added.

But Brian Henderson, senior consultant at Mercer, said while appetite for to-and-through among employers is likely to be low, a greater emphasis will be placed on providing some level of governance oversight in scheme members’ journeys beyond retirement.

He also said any schemes that do consider to-and-through may be “large and potentially influential”.

Continued costs

However, questions remain over the potential costs that may be involved in post-retirement products, including drawdown and self-invested personal pensions. 

“It may be possible to work with providers or advisers to negotiate an industrial-strength fee for members to use for pre-built drawdown funds or strategies which have been designed with advice,” Henderson said. “We anticipate this could be a fast moving area.”  

Andy Dickson, investment director of UK institutional business at provider Standard Life Investments, said employers’ desire to fully realise the value from their investment in DC could help drive to-and-through approaches.

He argued that as DC forms a significant benefit spend for many employers, they increasingly recognise the “importance of adequate provision”.

Dickson said: “Given the additional value that can be derived from investment returns in the latter phase of savings as funds values are at their greatest, this fact alone may act as an incentive to support the to-and-through savings phase.”

Parr said one option could be for schemes to arrange a “tie-up” with external retail providers willing to take on their members beyond retirement.

“This has already been quite common with senior execs leaving traditional DC trusts to go into retail Sipps,” he said.