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Compulsion is only way, warns Aussie supremo

Price caps fail to work in a complicated distribution system like the UK and only serve to damage the market according to the architect of the Australian compulsory pension system.

Senator Nick Sherry, currently the Australian shadow minister for retirement incomes and savings but was previously the minister in the last Labour government, also says compulsion is the only way forward to pay for retirement and condemns voluntarism as a failure.

Sherry, who testified last week before the Parliamentary work & pensions select committee as part of its inquiry into pensions, says the only real question up for debate is the level of compulsion, not whether compulsion itself is correct.

He told the committee that it would not be difficult for the UK to implement an Australian-style system of compulsion as before Australia went down its current route, the two systems were broadly similar.

After his testimony, he told Money Marketing he does not agree with price caps, pointing to the fact there is no price cap in Australia and the market has determined the current charging structure which is about 1.2 per cent a year.

Sherry, Labour senator for Tasmania, was one of the key architects of Australia&#39s superannuation system and from 1991 to 1993 was the chairman of the committee which determines the rate of compulsion.

Sherry said: “Pricing has to reflect the distribution system. In a country like the UK where there is a complicated distribution system, price caps do not make sense. Voluntarism is a failure, compulsion is the obvious way of paying for retirement. The real issue is what level you set the compulsion at.”

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