Australiaís Retirement System: Strengths, Weaknesses, and Reforms
Australia’s retirement income system is regarded by some as among the best in the world. It has achieved high individual saving rates and broad coverage at reasonably low cost to the government. Australia’s system does have shortcomings. It is heavily dependent on defined contribution plans and is vulnerable to weaknesses in such programs. Its government old-age pension is a means-tested benefit, which creates potentially troublesome incentives for workers with defined contribution accounts.
This brief provides an overview of the system and recent reforms. The first section presents the Australian system. The second section reviews recent reforms, which have focused on the individual account component of the system. The third section discusses outstanding issues. The fourth section offers some potential lessons for the U.S. retirement system. The final section concludes that the recent reforms should strengthen Australia’s system and provide lessons to other nations that increasingly depend on 401(k)-type individual accounts.