The long-awaited move to individual saving for retirement finally began and is now applied throughout the UK. The minimum contribution has been set to rise from two per cent to eight per cent of income by 2018, as is currently mandated. Whilst this contribution falls far short of an adequate amount necessary to ultimately reduce state dependence, the resulting changes promise to be significant.
Taking published statistics at face value, 50 per cent of the UK population has made no formal retirement provision. That being the case, the significance of these radical changes will have a major impact on the lives, lifestyle and choices of millions of people.
The Australian Experience
Australia is more than 20 years ahead of the UK in respect of compulsory retirement savings. In 1988 a similar percentage of Australia’s population had no formal provision for retirement and the total retirement savings in the country accounted for 51% of their Gross Domestic Product. A generation later, retirement savings accounted for more than 100% of Australia’s GDP, $1.8 trillion, much of which was invested domestically.
Interestingly, Australia’s experience of enforcing compulsory retirement savings has effectively grown the savings pool, rather than merely diverting savings between sources. The resulting impact on the Australian economy and the wellbeing of their population is profound and a source of competitive advantage.
Studies and analysis of the pros and cons experienced by the Australian experience provide valuable insights for wealth management industry strategies in Britain today, particularly learning how to develop opportunities presented by the planned changes. Policy makers and those at the top of the financial industry, including strategy directors, product developers and wealth managers in the UK will look to create a similar impact here.
UK financial services are set to adapt the Australian model, looking at potential changes to gain future competitive advantage.