Ive been to Australia 14 times since late 2012.
Four. Teen. Times is how my wife informed me of
this fact, which she followed with a raised eyebrow and a
single word: Why?
My answer which invoked the time I chased kangaroos
around a farm on an old motorbike missed the mark. Thus
I was asked to go away and come up with a better explanation
for all the time I was spending Down Under, and why my flights
to frozen Edmonton or searing Abu Dhabi and Muscat had been
replaced with long hauls to Sydney and Melbourne.
But before I can explain Australia, I need to give some
context. As Ive mentioned before in this column, the
entire planet is failing to prepare its rapidly aging
population for retirement. For example, a 2011 study showed
that only half of Americans would maintain their standards of
living in retirement.
The defined benefit pensions that once provided retirement
security are disappearing because of their high cost. Defined
contribution plans have been shown to be inadequate because
people dont save enough and often make poor investment
decisions with the money they do save. The situation in the
U.S. and elsewhere is dire, and that is why we need to spend
time understanding a place that has managed to figure out how
to prepare its people for retirement.
That place, in my view, is Australia. Its citizens save more
money than people in other countries, and they invest what they
save better than most.
On the saving side, Australia has built a retirement system
that achieves high savings rates at a low cost to government.
It does this by combining a means-tested public system with a
private system that has a high mandated savings rate via
Today more than 90 percent of the country participates in a
superannuation fund; employers contribute 9.5 percent of
salaries to what are called super accounts (and that amount
will grow to 12 percent in the next decade or so).
Yes, a mandate is a hard thing to pass, but Australia
combined its 1992 mandate with a big tax break, which made the
pill easier for conservatives to swallow. Australians had about
$250 billion in superannuation savings in 1996. Twenty years
later they had saved $2.2 trillion, making Australia the
fourth-largest country in terms of pension assets.
On the investment side, the wall of money coming at
superannuation funds has forced them to innovate lest they fall
behind the pace of asset growth. As a result, you can actually
find innovative pensions two words that dont
normally go together in the outback. This has led to an
Australian version of pension provision and institutional
investment that I like. Here are a few reasons Im a
Alignment: Super funds have a strong member-first
orientation that puts individual well-being above everything
else in the organizations. Its not just lip service. I
cant tell you how refreshing it is to be in a meeting and
hear investment professionals talk about members.
Efficiency: Super funds have a strong belief that the costs
of professional investment management are too high. What I like
most about this position is its nuance: Despite their aversion
to paying too much, these funds still find ways to do a lot in
the alternative-asset classes, such as infrastructure and real
estate. They arent managing their assets just to minimize
fees; they are minimizing fees to maximize returns.
Professionalism: The superannuation industry offers a pooled
approach to investing, which offers those individuals saving in
a defined contribution plan a chance to benefit from top
investment talent on an aligned basis. In the U.S. most defined
contribution plans are entirely self-directed, and that means
people who know nothing about investing oversee them (yeah,
Innovation: The super funds exist in a competitive
environment that sees bad funds go out of business. Thats
extremely rare in this world, which generally gives pension
funds a monopoly on fund assets, leaving them allergic to
innovation (and thus vulnerable to private sector predations
over time). In Australia the number of industry funds has
shrunk by 76 percent over the past two decades; this means the
funds have had to professionalize or die. Though I sometimes
worry about the effect this competition has on the time horizon
of investments, after five years of working with these funds I
believe that the impetus to be creative that emerges from this
competition outweighs any negatives.
In sum, Australia seems to have found a successful recipe
for retirement success that combines high savings rates at a
low cost to government with professional investment management.
In my view, it is the most interesting pension and investment
place on earth today more valuable as a role model than
Canada or the Netherlands or the U.K. and thats
why Ive been spending so much time flying over the