Trump looking into Australia’s ‘superannuation’ retirement programme for US; here’s how it works

How does superannuation work

Superannuation is Australia’s flagship retirement programme, wherein employers are required to fund their employees’ savings account which is then invested in select funds, also known as super funds and the amount invested gets locked up until the employees’ retirement. The contributions made by employers are on top of the regular salary being paid to employees. In the structure, employees can also contribute to their own savings account.

The super funds must be contributed by employers with an equivalent of 12% of the employees’ income, which is actually a gradual increase from erstwhile 3% when the modern superannuation programme was established in 1992. As per JPMorgan Chase, Australia’s superannuation programme (super funds) is the fourth largest is the fourth largest retirement savings pool in the world.

Why is superannuation popular

The superannuation programme was introduced in Australia in order to address the issue of aging population and concerns surrounding how people would support themselves upon their retirement. According to Tim Jenkins, partner at consulting firm Mercer, “With an aging population and declining birth rates, a system like this takes the fiscal burden off future generations,” CNN reported.

Apart from the superannuation programme, Australia also has a government pension programme that acts as a safety net for people who require additional support. However, due to its popularity, superannuation has increasingly become the primary retirement savings plan in the country.

The US model

The model which America follows is an employer-sponsored retirement programme such as 401(k)s which is an optional plan and first came into effect in 1978. Employers also have the freedom to decide if they would like to match employees’ contribution under the 401(k) plans.

America primarily depends on social security for the retirement income which was established in 1935 under former President Franklin Delano Roosevelt. The workers in the United States pay Social Security tax which is contributed into a fund and it becomes the retirement income for the current retirees. However, concerns have been raised that the structure of Social Security funds might be leading to a collapse as the US population ages.