What happens when the population starts to save for retirement
The UK has begun the long awaited move to individual saving for retirement. The current 2% minimum contribution is not much, though that will increase - as is currently mandated, to a level of 8% of income by 2018. Whilst still woefully inadequate to ultimately reduce state dependence, the changes this will bring promise to be significant.
Comparisons are going to continue to be made to the Australian experience. Whilst Australia is over 20 years ahead with compulsory retirement savings, the lessons and opportunities presented by the changes to Australia should be a valuable study for the strategy of the wealth management industry here in Britain.
If you take the statistics at face value, 50% of the population in the UK have no formal provision for retirement. On that basis, what is occurring now is radical and will impact the lives and the behaviours of millions.
In 1988, Australia had a similar percent of the population with no formal retirement provision and by way of comparison to the UK, the total retirement savings in Australia accounted for just 51% of gross domestic product. In 20 years, retirement savings in Australia account for well in excess of 100% of GDP or a staggering $1.8 trillion, with a lot of that invested domestically.
The impact that this has on the economy and the wellbeing of the population is profound and a source of competitive advantage. If allowed, a similar impact in the UK will occur.
What is fascinating in Australia's experience is that compulsory retirement savings have not 'diverted' savings from one source to another, it has genuinely grown the savings pool anew.
For the policy makers, product developers, strategy directors, and wealth manager leaders, the lessons may prove valuable sources of future competitive advantage.
Over the next year we will look at potential changes across the UK financial services landscape - if the Australian experience is anything to go by.