The Australian government is planning to enshrine a law that states the objective of superannuation funds is to “provide income in retirement to substitute or supplement the age pension”.

It means that all future pension policy will revolve around meeting the objective; it is a move away from the freedom and choice reforms seen in the UK which means people no longer have to buy an annuity.

Commenting on the change, Just Retirement group communications director Stephen Lowe said both the UK and Australia share the same problem of “how to build a sustainable pension system for an ageing population”. However, he said the proposed solutions are “very different”.

“The Australian government has announced it is to embed the objective of its private pension system – to provide income in retirement to subsidise or supplement its state pension – into a standalone Act of Parliament. From then on, that objective will become the anchor for all future pension policy.

“That clarity of objective is very different to here where the link between pensions and retirement income is being blurred by reforms allowing lump sum withdrawals from age 55 and the new Lifetime Isa.”

Lowe explained that the UK has adopted a “multi-tool approach” that sees pensions as many thing to many people. In Australia, however, they have decided that “providing a decent income in retirement is such a big job that it’s better to have a tool designed for that purpose.”

In addition, the government has said superannuation tax concessions will be better targeted to those who need incentives to save and improve effectiveness of the tax system as a whole. In this respect, Lowe said the UK and Australia are “moving closer together”.

“Even some of the language used by the Australian Treasurer Scott Morrison – enhancing ‘flexibility and choice’ for example – is the same as here which reflects the fact that work patterns in both Australia and the UK are changing and more responsibility is being placed on savers with less reliance on the state.

“In many ways Australia is years ahead of us in terms of auto-enrolment into pensions which means pension pots tend to be much bigger than here. Yet the Australian government is still worried people are missing out on income and are vulnerable to running out of money in old age,” he stated.

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