At a time when pension systems around the world are creaking, Australia’s is a standout. In terms of financial security for retirees, it ranked third globally behind the Netherlands’ and Denmark’s in one survey. Yet there are also urgent calls for changes to a system that’s projected to grow from almost A$3 trillion ($2 trillion) to A$5.4 trillion within a decade.

1. How does the system work?

The main part is known as superannuation, or more colloquially as “super.” It’s a mandatory scheme that dates back to the 1980s when trade unions agreed to give up pay rises for members in return for employer-funded pension contributions. Companies pay 9.5% of a worker’s gross salary into a retirement fund that typically can be accessed from age 65. Forcing people to save for retirement eases the strain on Australia’s means-tested state pension, which like other national plans is under pressure as people live longer.

2. What’s wrong with ‘super’?

For one, generous tax concessions have allowed richer Australians to use the system to generate wealth. Those tax breaks have, some argue, cost the authorities more in revenue than the money saved from lower welfare payments. The government is reviewing whether to boost mandatory contributions to 12% by 2025.

3. What else needs fixing?

Although people should have one fund each, many have ended up with more, meaning unnecessary fees and life insurance premiums. That’s because some workers who switch jobs are automatically enrolled into funds but do not roll their old account into the new one. A government review body identified 10 million duplicate accounts that racked up A$2.6 billion a year in unnecessary fees. As a result, the authorities are making it easier for people to consolidate funds, capping fees on low-balance accounts and banning the common practice of automatically enrolling young workers for life insurance.

4. How do funds perform?

The battle for regulators is to ensure that funds generate decent returns and don’t charge excessive fees. Australia’s financial regulator has begun publishing a performance heatmap to identify laggards and high-fee funds. It’s encouraging smaller, poor-performing funds to merge, a push that some expect to eventually result in just a handful of giant funds. As the world’s fourth-largest retirement savings pot continues to grow, those funds will become increasingly powerful -- exerting greater influence on company boards on ESG issues, for instance, and pressuring money managers to cut fees.

5. Who manages the money now?

There are three main groups of managers: the largest are the not-for-profit firms known as industry funds that are typically associated with trade unions; so-called retail funds that are often owned by banks or listed money managers; and self-managed funds that allow people to take direct control over their investments. There are also government funds for public sector workers and company pension funds. The money is managed either by in-house investment teams or via mandates that are awarded to a multitude of local and overseas managers competing for a slice of the pie. Funds have traditionally favored stocks and government bonds over other asset classes, but are increasingly turning to infrastructure, private credit and venture capital as well as looking overseas to generate returns. Among the biggest non-profit funds are AustralianSuper and QSuper.

6. How is Australia’s population changing?

As with other developed countries, it’s getting older. Sustained low fertility and increased life expectancy mean the over-65 population is projected to nearly double to as many as 6.7 million people by 2042. In contrast to many other developed countries, however, Australia’s population is projected to grow from its current level of 25.6 million to between 32 and 37 million people over the same time frame.

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To contact the editors responsible for this story: Edward Johnson at, Grant Clark

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