As Social Security is on track to be depleted by 2032, the White House is seeking alternatives for aging Americans, and President Donald Trump seems enamored with one particular country: Australia. Trump is reportedly looking to Australia’s retirement system as a substitute. While some economists feel this could be an easy solution, others say it is not so simple.
Australia’s retirement system has “three main pieces: a compulsory employer-funded retirement account, a public means-tested Age Pension, and voluntary private saving, including housing,” said Forbes. The part Trump seems to be honing in on is the first piece, called superannuation. The process works by requiring employers to contribute at least 12% of an employee’s earnings into an investment account similar to a 401(k).
In other words, Australia “does not merely tell workers to save. It makes retirement saving part of the employment system,” said Forbes. Under Australian law, an employee’s retirement account “stays open even when switching jobs, their balance remains invested, and the new employer can continue contributing to the same account” without having to cash out, said Newsweek. The superannuation plan differs significantly from the U.S., where there is no requirement for employers to “offer or contribute to any retirement plan.”
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Trump has previously supported a change to this type of model if Social Security benefits run dry. “We’re going to be doing also something we’re working on later on, and it’ll be also, I think, very popular, and I guess the best definition is they have a plan in Australia, which people really like,” the president said during an Oval Office event launching his Trump Accounts for children. “We’re going to be talking about that with Congress and see if we can implement it.” Australia’s “system is on pace to be the world’s second-largest retirement plan within the next decade,” while the United States is “facing its own retirement crisis,” said Bloomberg.
It is “easy to see the political appeal of a model that mandates high contributions, expands coverage even to part-time workers, and shifts the responsibility for funding and managing the plans into the private sector, said Bloomberg. Whether the idea would actually work in the U.S. has experts divided. Since the money for the savings would still be taken out of employee earnings, it “would hurt low-income workers, who might need all of their paycheck to cover the expenses of daily life,” Romina Boccia, the director of budget and entitlement policy at the Cato Institute, told USA Today.
What next?
While Trump has gotten behind Australia’s superannuation system, there isn’t a significant plan in place. As Trump’s handling of the economy gets low marks among voters, some economists say copying Australia would be a good idea. “If you were inventing a retirement system from scratch today, you would almost certainly do something like the Australian retirement system,” Andrew Biggs, a senior fellow at the American Enterprise Institute, told USA Today.
But the U.S. could still be a ways away from such a system. While “access to tax-favored retirement plans is widening as more states introduce ‘automated savings’ programs,” that is still a “far cry from requiring workers to save for retirement, as Australia mandates,” said USA Today.
