Aries' Ian Neale compares the UK pension system to the one in Australia and ponders what we can learn from 'down under'.

The UK pensions tax regime can be described as 'EET': contributions exempt, investment growth exempt, benefits taxed (OK, that's an over-simplification; but this is a blog, not a PhD thesis). You're probably not surprised when you find that they do things the other way round, 'down under': the Australian regime is 'TTE'. Which means, generally speaking, that retirement benefits can be, and usually are, taken as a lump sum. What you do with it is up to you, but purchasing an annuity is not top of most people's list. Some spend it and then fall back on the (means-tested) state pension.

So while undeniably appealing to the individual, there is another side to the story: the cost to the wider society. Here's another example. Visiting family in Australia recently, I found quite a bit of chat about the outcome of their recent general election, which had returned the former opposition to power. All kinds of things were going to change under the new right-wing government (including repeal of the carbon tax – Tony Abbott is not keen on 'green crap' either). But one thing not on the agenda, it seems, is tackling 'negative gearing'.

What exactly does that mean, I asked a friend? Well, he said, if you have a buy-to-let mortgage, and the income you get fails to match your outgoings, you have negative gearing; but the government gives you back a percentage of the difference corresponding to your marginal tax rate. So it's a tax break. Add to this the fact that self-managed super funds (the Australian equivalent of self-invested personal pensions) can invest in residential property, and you have a recipe for zero tax on the fund. What could possibly go wrong?

In the context of auto-enrolment, Australia is sometimes held up as an ideal model; yet another way in which the Aussies seem to be years ahead of us in making pension saving a success. It's true that they introduced compulsion in 1992 and went from a standing start of 4% employer contribution to 9.25% today; by 2020 it'll be 12%. How did they do this, without major dissent and no opt-out facility?

It was crafted as part of an overall national wage case deal between employers, trade unions and government. It is widely accepted, perhaps because the Australian superannuation system is not burdened with the historical baggage we suffer in the UK. For one thing, Australia has never had contracting-out (nor has any other country, for that matter); not least because they don't have a National Insurance system to contract out of. Arguably, then, employer 'super' contributions merely match UK employer NICs.

So before waxing lyrical about how great is the Australian way – and it must be said that in some ways they ARE years ahead of us – we need to orient ourselves. Find out where they started from, and whether there is a downside.

In the context of restoring confidence in the UK pension system, as the proverbial Irishman said 'I wouldn't start from here'; but little shifts could make a difference. For example, as I have been saying for years, drop the loaded – negatively geared, if you like – word 'pension' and boost perception by talking instead about 'my super fund'. As they do 'down under'.

Written by Ian Neale, director, Aries Pension & Insurance Systems Ltd

ian@ariespensions.co.uk