Vanguard Launches Pension Fund to Capture Slice of Australia’s $2 Trillion Savings Pool

A general Melbourne CBD street scene in Melbourne, Australia, on Feb. 4, 2021. Asanka Ratnayake/Getty Images

U.S. investment giant Vanguard has 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 Nov. 11, Vanguard announced its new product, Vanguard Super, which will attempt to win over local workers by undercutting its competitors.

“As the first new entrant into the Australian superannuation industry in years to gain an RSE [registerable superannuation entity] license and launch despite industry consolidation, we’re here because we truly believe we can improve retirement outcomes for Australians and be a catalyst for much-needed change in the industry,” said Managing Director Daniel Shrimski in a statement.

Vanguard said half of the Australians in a recent company survey said they were unsure what fees they were paying their current pension fund and that two out of five individuals were unsure if it was “low cost.”

“There remains a lot of variety in how superannuation fees are constructed and communicated to members—making it difficult to truly understand how much they are paying each year,” Shrimski said.

Vanguard Super will launch 12 products and charge just a 0.58 percent annual fee, one of the lowest in the country, for balances under $50,000 and for those aged 47 or under.

Its “Lifecycle” product will invest more funds into growth assets when the customer is still aged 47 or under, but once they reach 48 or over, their funds will be distributed to more “defensive” assets that have less risk.

From the age of 82 onwards, the asset allocation will be spread to even safer areas to shield retirement savings from volatility.

Company to Face Stiff Competition

Meanwhile, Vanguard faces stiff competition from major incumbents linked to local unions and specific industries.

In the 1980s, the Hawke-Keating Labor government made it compulsory for workers to contribute a portion of their income towards superannuation (10.5 percent), effectively spawning a huge pension industry that has outgrown the domestic market.

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

The funds have faced pressure domestically to improve their performance and returns for workers.