Savings

Vanguard launches pension fund to capture slice of Australia’s $2 trillion savings pool

American investment giant Avant-garde launched a pension fund in Australia in a bid to win a slice of the world’s fifth-largest pension fund worth $3.3 trillion (US$2.18 trillion).

On November 11, Vanguard announced its new product, Vanguard Super, which will try to win over local workers by undermining its competitors.

“As the first new entrant to the Australian superannuation industry in years to obtain a CSR [registerable superannuation entity] license and launch despite industry consolidation, we are here because we truly believe we can improve retirement outcomes for Australians and be a catalyst for much needed change in the industry,” said Chief Executive Daniel Shrimski in a press release.

Vanguard said half of Australians in a recent business survey said they were unsure of the fees they were paying to their current pension fund and two in five were unsure if it was “Low cost”.

“There remains a lot of variety in how pension contributions are constructed and communicated to members, making it difficult to really understand how much they pay each year,” Shrimski said.

Vanguard Super will launch 12 products and only charge an annual fee of 0.58%, one of the lowest in the country, for balances under $50,000 and for people age 47 or younger.

Its “Lifecycle” product will invest more funds in growth assets when the client is still 47 or younger, but once they reach 48 or older, their funds will be distributed to more “defensive” assets that exhibit less risk.

From age 82, asset allocation will be spread across even safer zones to protect retirement savings from volatility.

The company faces fierce competition

Meanwhile, Vanguard faces fierce competition from major incumbents tied to local unions and specific industries.

In the 1980s, the Hawke-Keating Labor government made it compulsory for workers to contribute part of their income to superannuation (10.5%), creating a huge pensions industry that outgrew the domestic market.

In August, the country’s largest pension fund, AustralianSuper, announced that it would seek to invest 70% of its capital overseas with offices in London and New York.

The funds have come under national pressure to improve their performance and returns to workers.

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Daniel Y. Teng is based in Sydney. It focuses on national affairs, including federal politics, the response to COVID-19 and Australia-China relations. Do you have any advice? Contact him at [email protected]