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💡 Main takeaway:
Key takeaways
- The Trump administration is eyeing the Australian superannuation model as a potential path to the United States
- In contrast to the United States, where many workers lack access to or do not participate in retirement plans, Australia mandates an employer contribution of 12%, creating a more robust retirement savings system.
The Trump administration looks to the Australian superannuation system for inspiration.
In a recent press conference, President Donald Trump indicated that his administration is studying the Australian superannuation system.
“He-she [the Australian retirement savings plan] “It’s a good plan and it was executed very well,” Trump said Tuesday.
The Australian superannuation system is markedly different from the US superannuation system and here’s how they compare.
How does the US retirement system work?
Historically, retirement in the United States has been viewed as a three-legged stool, with retirees able to rely on pensions, Social Security, and personal savings to fund their golden years.
However, as pensions have fallen out of favor over the past few decades, workers have increasingly been forced to rely on their personal savings and Social Security benefits.
While the vast majority of Americans age 65 and older receive retirement or disability benefits from Social Security, access to workplace retirement plans remains limited.
As of March, 70% of private sector workers had access to a defined contribution plan, such as a 401(k), but only 50% actually participated. And employers aren’t legally required to contribute to workplace retirement plans either — although they can make matching contributions.
It may be easier to save for retirement in Australia
Unlike America’s superannuation system, Australia’s basic superannuation scheme, known as Superannuation, relies largely on employer contributions, reducing the pressure on individuals to save.
Beginning in 1992, Superannuation Security required employers to contribute a certain percentage of workers’ salaries to a super fund, a type of investment fund managed by a trustee. Currently, employers in Australia are required to contribute 12% of a worker’s salary to a superannuation fund. Workers are also eligible to make contributions.
In addition to the Super Fund, some older Australians are eligible for a superannuation depending on their residence status, income and net assets.
What does this mean for you?
If similar policies were adopted in the United States, people might have to save less for retirement on their own, because mandatory employer contributions would ease the burden on individual savers.
Despite its small population, Australia has one of the largest superannuation systems in the world, thanks to its superannuation system, which contains $4.3 trillion in assets, according to JPMorgan.
In a recent ranking of the world’s pension systems by Mercer, Australia’s ranking above the United States’ B+ rating indicates a need for improvements despite a solid foundation. In contrast, the United States received a C+ rating, a rating that indicates the risk of future instability and the need for major changes.
However, it remains ultimately unclear whether the Trump administration will implement elements of the Australian superannuation system into the US and what the impact will be on workers’ retirement savings.
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