A Brief Critical Review of Australia's Retirement Savings System

Abstract

On the first day in a new job in Australia, an employee will be asked “in which bank will we deposit your salary?” and “in which fund will we deposit your retirement savings contributions?”

Australian companies have (almost) entirely outsourced retirement savings. For better and worse, companies and other organizations have (almost) no interest in or responsibility for their workers’ retirement; moreover (almost) all retirement savings vehicles are defined contribution (aka accumulation). This is surprising for a country with bipartisan support for the benefits of government-funded social welfare programs, especially because the retirement policies were driven largely by the union movement.

Mercer ranks Australia’s pension system as one of the world’s best. Its size and success make it a magnet, and a rainmaker, for financial services professionals. The system has become fraught with myriad choices, which few members take advantage of, but which drive up overhead costs. In this article we review the history of Australian pensions and current reforms, and we point out where we believe the system could better serve its many millions of members.

Keywords: Australia retirement savings system, Australia pension system

JEL Classification: G10, G11, G23