Reforming the Australian Retirement System: Mandating Individual Accounts

Steven A. Sass

GIB#2

Introduction

Australia’s new retirement income system combines two components. The first is the Age Pension — a means-tested allowance, funded out of general government revenues, which was put in place as a welfare program in 1908. After its expansion in the 1970s, the Age Pension has become more of a universal entitlement with a claw back that reduces, then eliminates, benefits for upper-income recipients. The second component is the Superannuation Guarantee (SG) — a mandatory defined contribution savings program put in place in 1992, which takes 9 percent of earnings. Preexisting employer defined benefit pension programs are also adopting the SG’s defined contribution format…