Just as the Chancellor decides that people are experienced enough to make the right decisions on pensions, evidence from Australia has surfaced to show that this may be completely the wrong approach.
In the Australian superannuation system, the money that has been accruing into ones pension fund at retirement can be taken as a lump sum and many of them do so. However, the result has been that large numbers use up their savings at a relatively early stage in their retirement and end up not being able to support themselves in the latter half of the retirement phase.
The Centre of Excellence in Population Ageing Research in Australia has stated that because of the fact that the system provides the pension in a lump sum, there is no ‘income mentality’ in Australia; people are not inclined to look at the money as an opportunity to establish an income stream that would be available to them across their retirement until end of life, and instead view it as a lump sum to spend in the early years of their retirement.
Like all other populations, Australian surveys show that Aussies generally underestimate how long they are going to live at the retirement point and therefore end up relying on Australia’s aged pension scheme, government funded, or, worse, trying to re-enter the workforce after an initial phase of retirement.
The resulting reliance on the government is a growing problem and has led to speculation that the next federal budget will take action to try to increase the number of people establishing income streams, i.e. annuity style arrangements, rather than just taking the lump sum.
This should make the UK government pause for thought. It’s not just water in a plughole that moves in the opposite direction down under; their pension strategy also appears to be moving contrariwise to the UK strategy.
It’s well known that the cheapest way to learn is to learn from other people’s experience. The Australian’s have been operating their system for 22 years now which means it is up and running long enough for any problems to have become apparent. To ignore these issues and press on with what is in the first instance a politically popular policy shows the true nature of the Chancellor’s recent pension reforms.
There is still time to revise this approach before it comes fully into effect. Pensions are a long-term issue that require long-term strategies, not political quick wins. The measure of the Chancellor’s statesmanship is whether he can maturely assess the issues with his current approach and adjust accordingly, or whether he insists on ploughing ahead, despite the evidence from other countries that this may not be the best way to ensure comfortable retirement for the public.
We can only wait and see.
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