With trillions of dollars of funds under management in Australia, governments around the world are tapping into the expertise of Victorian pension fund experts.
Political leaders grappling with the reality of an ageing population and how to ensure older citizens have adequate financial resources in retirement are increasingly turning to Melbourne for answers.
With A$2.7 trillion of funds under management the expertise gleaned during a two-decade-long transformation of the Australia's pension fund industry has been considerable. Furthermore, the Australian Trade and Investment Commission notes that the Australian pool of managed investment funds is the third-largest in the world and the largest in the Asia-Pacific.
Given Australia's history of managing pension funds and the success of its pension fund model, it is easy to see why international governments are eager to examine the distinctive features of the Australian pension fund industry, including collaboration with the private sector and innovative pension-management models.
Super City Offers Lessons for All
Melbourne has been at the heart of Australia's pension fund success. Ian Silk, chief executive of leading fund AustralianSuper, recalls that 20 years ago – as Australia's pension model was starting to evolve – political and business leaders in Melbourne made the smart decision to position the city as a leading finance hub and pension fund management centre.
"Victoria was an early mover into Public and Private Partnerships (deals) and investing and selling of public assets," Silk says. "For AustralianSuper, this has meant that we've had the opportunity, from the very beginning, to have direct access (to) and knowledge of terrific investment opportunities."
The other key advantage according to Silk is Melbourne's reputation as a business, education and lifestyle hub. That has allowed AustralianSuper to access high-quality staff. "Not only are Melbourne's educational institutions renowned, but Melbourne is a great place to live, meaning talented people look for opportunities locally," he says. "Equally, it's an attractive destination for people who are working outside Melbourne, or even overseas."
Australia's Unique Private Pension Model – How It Works
An innovative Australian managed pension model requires most employees to be covered under the Federal Government-legislated scheme. Employers must make contributions amounting to 9.5% of each employee's gross earnings into a pension fund that the wage earner nominates. Generous tax concessions encourage additional voluntary contributions.
Set up with the aim, among others, of relieving pressure on the social security system as the nation's population ages, the model has led to the exponential growth of Australian pension fund expertise. This experience is not confined to the management of Australian assets; increasingly, such knowledge is informing offshore asset management in areas such as equities, REITs and fixed-income investments, as well as hedge funds and infrastructure investment.
Melbourne Mercer Global Pension Index - Melbourne's role in this success story should not be underplayed
Last year's Mercer Global Pension Index compared the schemes of 25 countries – Australia, Austria, Brazil, Canada, Chile, China, Denmark, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, South Korea, Mexico, Netherlands, Poland, Singapore, South Africa, Sweden, Switzerland, the United Kingdom and the United States. Australia's pension model ranked third among those countries, pointing to the knowledge that resides in Australia and within the corridors of Melbourne's business and investment community.