Australia’s retirement savings model is shaping the UK’s investment future

Before Australia and England meet on the cricket field later this year for the Ashes, the two nations – bound by deep ties and a shared history – are coming together on a different stage at next week’s Australian Superannuation Mission to the UK.

Focused on partnership, private markets investment opportunities, as well as mutual learning in defined contribution (DC) system design, this is more than just another financial conference. It’s a recognition of Australia’s rising tide of pension savings, already a A$4.1trn (€2.3trn) pool of retirement savings capital; the fourth largest in the world and growing at an extraordinary pace.

Every week, around A$4bn flows into the system. By the early 2030s, it’s expected to become the second-largest pool of retirement savings globally.

The growth of the system and its high existing domestic allocations mean that Australian super funds, as a matter of necessity, are increasingly looking overseas for high-quality, risk-adjusted returns, and the UK is an obvious destination for several reasons.

First, the Australians are already ‘over here’ in force, as investors across the range of UK infrastructure.

Second, this existing range of investments reflects the deep historical, cultural and language links between the two countries.

Third, the shape of contemporary geopolitics is bringing the nations closer together, still as allies in a world defined by Sino-US competition.The AUKUS alliance is a testament to that, with investment in each other’s defence capabilities increasingly viable.

Fourth, the ambition of the UK’s energy transition demands capital and pension funds can take the long-term view that is aligned with sustainable investing.

Australian capital is already playing a vital role in the UK, backing key sectors such as energy, transport, and social infrastructure. A standout example is IFM Investors’ stake in Manchester Airports Group (MAG), which owns Manchester, Stansted, and East Midlands Airports, and is focused on boosting national connectivity, strengthening supply chains, and growing the UK’s visitor economy.

“The two systems share enough structural similarities for meaningful comparison, and the UK is clearly taking note”

Gregg McClymont, IFM Investors’ executive director of public affairs, EMEA

Delivery of the £1.3bn (€1.5bn) Manchester Airport expansion programme is near complete, increasing capacity from 28 to 42 million passengers per annum. While its latest initiative – a proposed £1.1bn investment in a major expansion of Stansted Airport – is expected to create over 5,000 jobs and double the airport’s annual economic contribution to £2bn. The investment also paves the way for London Stansted’s 14.3MW on-site solar farm, which will support the airport’s current and increasing electricity demands.

If the investment opportunity is potentially a ‘win-win’, the summit’s focus on pension policy settings also highlights the UK’s growing fascination with Australia’s DC model.

In recent years, Australia’s success has become a reference point for successive UK governments seeking to mobilise the DC system to support nation-building infrastructure — boosting productivity and economic growth while delivering strong returns for savers.

With Australia having had 30 years to get things right (and on occasion wrong), the opportunity is real for the UK to learn from a system which, in its essentials, is similar enough in design. The two systems share enough structural similarities for meaningful comparison, and the UK is clearly taking note. This is evident in the government’s Pension Schemes Bill’s £25bn ‘scale test’ designed to mirror the consolidation seen in Australia in recent years.

The Bill also proposes using ‘net returns’ as the benchmark for pension fund performance, along with a commitment to implement Value for Money (VFM) metrics inspired by Australia’s investment performance test. While the UK is likely to take a slightly different path – particularly in developing forward-looking metrics to align VFM policy with its broader ambition to increase private market investment – there is a clear opportunity to draw on the analytical capabilities and expertise developed by Australian super funds in assessing expected future returns.

So, after years of admiring the Australian model from afar, the UK is now seeking a close-up view. While for Australia, the investment logic of a closer partnership is clear, given the growth rate of its pension funds and their consequent requirement to invest more workers’ retirement savings abroad.

Add in the geopolitical attractions of closer relations, and the basis for deeper pensions and investment talks between funds is not hard to understand.

Gregg McClymont is IFM Investors’ executive director of public affairs, EMEA