May 15, 2013 (PLANSPONSOR.com) - When it comes to retirement savings, the U.S. could learn a few things from The Land Down Under.
Australia’s retirement system consistently ranks among the best in the world, making it a great model for the U.S. Compared with other industrial nations, Australia has low public spending on old-age pensions, according to a paper from the Center for Retirement Research (CRR) at Boston College, “Australia’s Retirement System: Strengths, Weaknesses, and Reforms.” It also has high individual savings rates and rapidly growing retirement savings, according to the paper’s author, Julie Agnew, associate professor of economics and finance at the College of William and Mary, Mason School of Business.
Australia’s system consists of three main components that contribute to its success: the means-tested age pension, mandatory retirement saving program and voluntary savings. Introduced in 1908, the Age Pension is a means-tested benefit funded out of general revenues. It provides basic income to those with earnings and assets less than specified threshold levels. Singles can get a benefit equal to about 28% of the average male wage, and couples about 41%, with benefits reduced or eliminated as incomes or assets increase beyond the threshold, the CRR paper explains.
The second part of the retirement system is the mandatory “Superannuation Guarantee” program, created in 1992. The program requires employers to pay a proportion of an employee's salaries and wages; the current mandatory savings rate is 9% but it is rising to 12% by 2020. More than 90% of employed Australians have savings in a Superannuation account, according to the paper.