Rescuing Retirement by Teresa Ghilarducci

Author:Teresa Ghilarducci
Language: eng
Format: epub
Tags: BUS050040, Business & Economics/Personal Finance/Retirement Planning, BUS051000, Business & Economics/Public Finance
Publisher: Columbia University Press
Published: 2017-02-23T05:00:00+00:00

AUSTRALIA’S SUPERANNUATION GUARANTEE

Retirement observers perceive Australia’s Superannuation Guarantee1—a mandated savings system with similarities to our model for Guaranteed Retirement Accounts—as a potential road map for the United States.2 And for good reason: it has worked spectacularly well in helping people accumulate assets.

As recently as the 1980s, Australia’s retirement system resembled the U.S. system today. Pension plans covered less than half of the workforce, and Australia had an aging population.3 Many Australians were falling short in retirement, just as millions of American seniors are falling short today.4

In response, Australia pursued a then-novel solution: a retirement savings mandate. In 1992, it implemented its national superannuation savings program. Today, employers automatically contribute 9.5 percent of each worker’s salary to a long-term retirement savings account. (The percentage is set to rise to 10 percent in 2021, and to 12 percent in 2025.) On a voluntary basis, workers are encouraged to contribute extra if they can.5

It is pertinent to note that the Australian contribution level far outstrips the GRA’s proposed 3 percent minimum, that the mandate falls entirely on the employer, and that the program has in no way damaged the Australian economy or inhibited growth. In fact, more than two decades after it began, the model is a clear success. Before the system was enacted, only 23 percent of Australia’s low-income construction workers and government clerks had retirement pensions. Today, all workers are covered by a retirement plan. User satisfaction is high and on the rise.6 The program currently has almost AU$2 trillion in savings, nearly as much as the country’s total gross domestic product.7

It is not a perfect system. Upon retirement, Australian savers can structure their benefit as a lump sum, a phased withdrawal, or an annuity. The resulting “lack of annuitization makes older Australians heavily exposed to longevity, inflation, and investment risks.”8

Despite this weakness, however, Australia far exceeds most of the world in promoting a secure retirement. On key measures of effectiveness, sustainability, and integrity, its system trails only those of Denmark and the Netherlands.9 By contrast, as measured by the Melbourne Mercer Global Pension Index Survey, the U.S. retirement system lags behind, on a tier with Mexico and South Africa. The United States ranks below the median of other countries for “adequacy” and “integrity,” although it ranks above the median for “sustainability.”10

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