Daily Bulletin


Daily Bulletin

The Conversation

  • Written by The Conversation
imageThe compulsory super scheme in Australia is clearly superior to the voluntary 401(k) scheme utilised by the United States.Image sourced from www.shutterstock.com

Debate swirls around the strengths and weaknesses of Australia’s superannuation system. But there is one aspect where change should not be countenanced: its compulsory nature.

As an American Fulbright scholar studying workplace retirement schemes, I am undertaking a comparative analysis of super with the American 401(k) workplace retirement system.

There are many subtleties and nuances to be discussed concerning which occupational retirement system is better in areas as diverse as member engagement, corporate governance, and the best way for individuals to spend-down their funds in retirement.

One thing, however, is clear: the compulsory super scheme in Australia is clearly superior to the voluntary 401(k) scheme utilised by the United States. As a result, whereas the American retirement system is in full-out crisis mode, the Australian super scheme is comparatively tranquil and well set up to continue to mature as the overall Australian population ages throughout the 21st century.

To share just a few of the more galling statistics from the world of voluntary American 401(k) retirement plans: 48% of current US workers between the ages of 50 and 64 are on track to being poor when they reach retirement; the aggregate national retirement deficit number is currently estimated to be $4.13 trillion for all US households where the head of the household is between 25 and 64, and, on average, a typical working family in the anteroom of retirement — headed by somebody 55 to 64 years old — has only about $104,000 in retirement savings, according to the US Federal Reserve’s Survey of Consumer Finances.

Most retirement experts agree that people need to replace somewhere between 60%- 70% of income in retirement to live comfortably. Needless to say, the vast majority of Americans are not even close to meeting this standard.

How did the retirement situation become so out-of-whack in the United States? Quite simply, US employers do not have to sponsor workplace retirement schemes, and US employees are not compelled to participate in such schemes even if their employer offers one. The US voluntary workplace retirement system has led to only about 40% of the working population participating in such plans.

There is a common misperception that many people hold in both the US and Australia: the more choice that individuals have in matters of finance, the better. Although I normally subscribe to that maxim, in the world of retirement savings, I do not.

Wealthier individuals, with financial savvy, tend to understand what others do not: that a dollar put away today is equivalent to much more money when that person retires.

We call this the “time value of money.” Unfortunately, most people do not save voluntarily for retirement, especially in their 20s, 30s, and 40s. This makes sense.

Younger individuals have other pressing concerns to consider: student debt, their rent/mortgages, childcare expenses, groceries, etc. Retirement is the last thing on their mind and the last thing for which they save.

When you add in the natural tendencies of individuals to procrastinate, avoid complex financial decisions, and overestimate their ability to save for the future, you end up where the United States is today: the average person from age 22-48 has less than $50,000 put away in savings.

Further, compulsory super contributions spur the economy during periods of slow economic growth. Super funds, as institutional investors, place a large portion of that money back into the Australian economy through the purchase of Australian equities, infrastructure, and bonds. The purchasing power of all working Australians is multiplied by being able to place their money in investment vehicles that are not generally available to low and middle-income workers on an individual basis.

So, given the same amount of money in a lump sum, super funds are significantly better able to save and invest that money in diversified, low-cost ways that translate into better retirement outcomes for more Australians.

Compulsory workplace retirement savings schemes are imperative for any well- functioning occupational pension scheme. My sincere hope is that the United States chooses to emulate this aspect of the Australian super system.

Paul M. Secunda is a law professor at Marquette University Law School in Milwaukee, Wisconsin. This year, he serves as the Chairman of the ERISA Advisory Council of the US Department of Labor, which advises the U.S. federal government on retirement plan pension policy. He is spending six months this year studying the Australian Super Guarantee as a senior Fulbright Scholar and Senior Fellow at Melbourne Law School. All opinions presented here are done so in his individual capacity, and do not represent the views of any of the organisations with which he is affiliated.

Authors: The Conversation

Read more http://theconversation.com/our-super-system-isnt-perfect-but-for-a-failure-look-to-the-us-46886

Writers Wanted

4 Tips To Pass Skills Certifications Tests

arrow_forward

Israeli court rules Malka Leifer should be extradited to Australia, but obstacles remain

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Prime Minister National Cabinet Statement

The National Cabinet met today to discuss Australia’s COVID-19 response, the Victoria outbreak, easing restrictions, helping Australians prepare to go back to work in a COVID-safe environment an...

Scott Morrison - avatar Scott Morrison

Business News

How To Remove Rubbish More Effectively

It can be a big task to remove household rubbish. The hardest part is finding the best way to get rid of your junk. It can be very overwhelming to know exactly where to start with so many option...

News Company - avatar News Company

4 Tips To Pass Skills Certifications Tests

Developing the right set of skills is valuable not only to your career, but for life in general. You can get certified in these skills through obtaining a license. Without a certified license, y...

News Company - avatar News Company

How to Secure Home-Based Entrepreneurs from Cyber Threats

Small businesses are becoming a trend nowadays. The people with entrepreneurial skills and minds are adopting home-based businesses because of their advantage and ease of working from home. But...

News Company - avatar News Company



News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion