UK Pensions just aren't as good as Australian Superannuation
Table of Contents
This post will be a bit different for me because it’s not even remotely about my usual technology & startup rants.
When you find yourself financial planning, buying a house or just generally thinking about your future, you might come across the topic of pensions. In the UK, we have a similar system to the US where you pay into a pension pot and then when you retire you can draw down on that pot. In Australia, they have a system called Superannuation which is a bit different.
Key differences #
Mandatory employer contributions #
In the UK, employers are required to contribute 3% of your salary into your pension pot. But for this to happen, you need to put in 5% too.
In Australia, they’re required to contribute 11% rising to 12% in July 2025.
Investment strategies and returns #
Australian funds often adopt growth-focussed strategies, mimicking or even being the same as managed investment funds.
UK Defined Contribution pensions are often invested in low-risk, low-return funds. This is because the pension provider is liable for the performance of the fund. If they invest in a high-risk fund and it tanks, they’re liable for the losses.
Fees #
Australian funds are typically cheaper than UK pensions. This is because they’re often managed by large financial institutions who can afford to take a hit on fees.
Default fund systems #
There’s no default fund system in the UK. Australia has MySuper which ensures that all funds are competitive.
Choice #
In Australia, you can choose your superannuation fund. In the UK, your employer chooses it for you.
You can opt out, but if you do you’re missing out on the 3% employer contribution.
Portability & consolidation #
In Australia, you can consolidate your superannuation funds into one account. Each provider offers a very simple tool via the ATO that can find every superannuation account you have and consolidate them into one.
In the UK, you can’t do this unless you leave your job. At which point, you can only consolidate those funds after at least 10 weeks of requesting it.
Tax, so so much tax #
If there’s one thing there’s way too much of in the UK, it’s tax. IHT & Pension tax are the worst offenders because I believe they’re a double-tax on money that’s already been taxed. Imagine being taxed 45% on your earnings, then being taxed 45% again to pass it on to your kids.
Look at this… #
I’ve put this into a table so you can see the differences.
| Australian Super | UK Pension | |
|---|---|---|
| Mandatory contributions | 11% rising to 12% | 3% (part of 8% total) |
| Contributor balance | 11% employer, 0% employee | 3% employer, 5% employee |
| Typical annual return | 7-8% | 4-6% |
| Default funds | ‘MySuper’ ensures competitive choice | None |
| Fees | 0.5-1% | 1-2% |
| Retirement age | 60+ | 66 rising to 68 |
| Tax benefits | 15% during accumulation, 0% at retirement | Relief on contributions, taxed on withdrawal |
| Withdrawal | 0% is taxed | 25% tax-free, 75% is taxed |
Why is this important? #
The UK is struggling with an ageing population and a pension system that is not fit for purpose. This setup really isn’t helping them.
When you start at a company in the UK, they choose a pension provider for you & they’re usually rubbish. You can’t change your provider unless your company agrees, and they usually don’t. The fees are high, the returns are low and the whole thing is a bit of a mess.
Side note: I’ve noticed a tonne of anti-competitive behaviour in the UK masquerading as bureaucracy. This could be another example, but I can’t be certain. It feels like they dangle 5% in front of you to keep you in an employer-chosen pension - which seems ripe for bribery.
Advertising your pay in the UK #
Employers advertise “Base salaries” as the amount you’re paid before tax, minus bonuses. There’s no mention of pensions.
In Australia, we typically say “Total package including super” or “Base salary + super”. This is because the employer is legally required to pay 11% on top of your base salary into your superannuation account.
This needs to change #
This thing is just pointless. I’m effectively giving up 5% of my take-home pay from my base salary for my employer to contribute a measly 3% into a pension pot that I didn’t even choose.
My UK pension has a 5-year annualised performance of 7%, which is well above the average. But my Australian superannuation has one of 10.05% over the same period. That’s a huge difference.
I am extremely confident that in a worst-case scenario, I would have enough money in my Australian superannuation to retire comfortably. But in the UK, I’m not so sure.
Final thoughts #
The UK pension system is underwhelming, restrictive, and expensive. If policymakers don’t reform it, younger generations will struggle to retire at all.