US Considering Australian Retirement System Model?

The Administration is reportedly considering how an Australian-style superannuation retirement system could be implemented in the US. While superannuation has helped Australia address many challenges of providing retirement security such the US also faces, significant barriers – in particular for transition to a new system – would need to be addressed in adopting a similar system here.

• Australia’s retirement system includes three major components: a means-tested public pension, voluntary savings, and a compulsory employer-funded savings system called superannuation under which employers generally must contribute 12% of an employee’s salary to a portable tax-advantaged retirement account.
• It is unclear how the Administration envisions such a system in the US would be designed or how it would be implemented. However, it is unlikely the system could be introduced without either accelerating Social Security’s insolvency, curtailing some Social Security benefits, or significantly increasing employer tax obligations.  
• In addition, depending on the program’s design, the tax benefits associated with the accounts could be costly and primarily benefit higher-income individuals.
• Introduction of this system could also have significant unintended consequences, including shifts in investment patterns, potential consumer harms, and compliance challenges. Employers might also reconsider or reduce 401(k) matching contributions if required to contribute to a parallel mandatory savings scheme, which could otherwise significantly increase employers’ tax burdens.

Background

In recent comments to the press, the President said that the Administration is exploring implementing an Australian-style retirement program (“superannuation”) in the US. Superannuation is one of three pillars of the Australian retirement system, which also includes a means-tested public pension and voluntary savings.¹ Similarities between the challenges that motivated Australia to implement the system and those the US currently faces have generated support for US superannuation among some observers.² However, significant barriers stand in the way of major reforms to the US retirement system.

Evolution of the Australian Retirement System

The Australian employer-based retirement system predates the federation of the country in 1901. In the mid-1800s, employers introduced private retirement benefits for a small group of white-collar employees. Non-employment-based retirement care was limited and provided primarily by voluntary charitable organizations. However, in 1900, New South Wales, then still a British colony, introduced Australia’s first public pension program. Seven years after federation, Australia introduced a national retirement system with the passage of the Invalid and Old-Age Pensions Act (“Age Pension”) in 1908.³ The Age Pension, which remains in place, provides basic income support for those of retirement age or unable to work, but unlike the US Social Security system, Age Pensions are funded through general tax revenues rather than a special tax paid into a trust fund. Age Pensions are also flat-rate – that is, not scaled to an individual’s income – and means tested, with eligibility limited to those below a certain asset threshold.⁴

This dual system, with employer-based retirement benefits for wealthier workers and public pensions for poorer workers, remained relatively unchanged through the mid-20^th century. However, over time, several structural pressures emerged that increased interest in reforming the public pension system. First, demographic trends – rising life expectancy combined with lower birth rates – were forecast to produce an aging population, increasing the ratio of retirees to working-age taxpayers. This raised concerns about the long-term fiscal sustainability of a pension system funded purely through general tax revenues. Second, the public pension provides only a low level of income support and relatively few Australians outside of the highest income brackets received significant retirement income from other sources.⁵

Economic conditions in the mid-1980s, particularly high inflation, weak productivity growth, and concerns about international competitiveness led the Australian government to negotiate with trade unions to restrain wage growth in exchange for improvements to social benefits, including implementation of compulsory employer-funded superannuation contributions. As a result, beginning in 1986, as union contracts came up for renegotiation, 3% superannuation contributions were added. In the first full year of the program, about 42% of Australian employees were covered by the program, increasing gradually as union contracts were renewed.⁶ However, in 1992, Australia enacted the Superannuation Guarantee (Administration) Act, which extended coverage to most employers and also set a timetable for increasing contributions to 9% by 2001 (later increased to 12%).⁷ By 1994, about 92% of Australian employees were covered by the program. As of September 2025, superannuation funds held about $4.5 trillion Australian dollars (AUD) in assets (about $3 trillion USD), exceeding 150% of the country’s GDP.⁸

Key Features of Superannuation Funds

Australian employers are generally required to make super guarantee (SG) payments equal to 12% of the individual’s earnings for all employees over the age of 18. Some contractors are also eligible for SG payments. Employees can also make additional voluntary contributions. The payments are deposited into one or more funds (called a “super fund”) chosen by the employee.

Types of Funds

Super funds must be registered and regulated. Professionally managed funds, which account for about 69% of super fund assets, are primarily regulated by the Australian Prudential Regulation Authority (APRA), which also oversees banks and insurers.⁹ Australians may also set up their own funds – called self-managed super funds (SMSFs) – which can have up to six participants and are primarily regulated by the Australian Tax Office (ATO).¹⁰ The participants themselves are responsible for all aspects of the fund’s management, including investment choices, accounting and auditing requirements, and tax compliance. Because of the significant administrative burden – estimated at about 100 hours of work per year – SMSFs are typically used by more financially sophisticated investors with atypical investment portfolios which may include rental properties and business investments.¹¹ In addition to these prudential and tax regulators, the Australian Securities and Investments Commission (ASIC) oversees the conduct, disclosure, and financial-services aspects of superannuation across both APRA-regulated funds and SMSFs.

Permitted Investments

Fund trustees have a fiduciary duty to manage the fund in the “best financial interests” of its members but may offer a wide array of investment options as long as fiduciary and prudential obligations are met. For example, APRA-regulated funds primarily hold traditional investments including equities, fixed income, and cash (87% of total assets as of September 2025).¹² However, funds also invest in real property, infrastructure, and alternative investments. SMSFs offer members more control over their investments, which may include businesses, property, collectable assets (e.g., art and antiques), and crypto.¹³  

Withdrawing from a Fund

Funds may be withdrawn from super funds in a variety of circumstances.¹⁴ Generally, individuals access their funds beginning at their “preservation age,” which begins at 55–60 (depending on birth year), when individuals may withdraw their balance as a lump sum if they are retired or a percentage of their balance (an “income stream”) regardless of retirement status.¹⁵ Those over 65 may access their balance even if they are not retired. Individuals may also access their super funds for a variety of special circumstances, including permanent incapacity, severe financial hardship, or medical treatment.

Borrowing from a Fund

Participants are prohibited from borrowing from their super funds, but the funds themselves may borrow in limited circumstances. For example, SMSFs can use a “limited recourse borrowing arrangement” to fund the purchase of a single asset (e.g., a rental property) or a collection of identical assets (e.g., securities).¹⁶

Tax Treatment

Super funds are subject to tax at three moments – contribution, in-fund returns, and withdrawal.¹⁷ This is notably a very different system from the US in which money in 401(k) and many other types of retirement accounts (other than Roth accounts) are pre-tax dollars, not subject to tax at the time of contribution or reinvestment but only upon withdrawal. This section outlines the general tax rules in Australia, though there are many exceptions based on the particular circumstances of the individual.¹⁸

Contributions are taxed differently depending on whether they are made with pre-tax or after-tax funds. In general, pre-tax contributions – including employer contributions – are taxed at 15% when they enter the fund though those with incomes less than $37,000 AUD receive a credit to their fund for a portion of their tax and those with incomes exceeding $250,000 AUD face an additional 15% tax. After-tax contributions do not face additional tax. For comparison, Australian income tax rates range from 16% to 45%.¹⁹

Returns on investments within the fund are subject to a 15% tax before the individual retires. After retirement, fund returns are generally tax free up to a limit called the transfer balance cap, which was $2 million AUD in 2025.²⁰

The tax treatment of fund withdrawals depends on the individual’s age and the method of withdrawal (i.e., lump sum or income stream).²¹ Those over 60 generally do not pay tax on income-stream withdrawals or on lump sum withdrawals unless the funds are withdrawn from an untaxed super fund, such as a public sector fund. Those under 60 may owe tax on a portion of withdrawals received through an income stream. If the funds are received as a lump sum, the individual doesn’t pay tax on withdrawals up to the “low rate cap” – currently $260,000. If the withdrawal exceeds the low rate cap then the individual owes the lower of 17% or their marginal tax rate. Those who receive a lump sum and have not reached their preservation age pay the lower of 22% or their marginal tax rate. Additional rules govern the tax treatment of balances remaining after the death of the account holder.²²

Policy & Economic Context

Superannuation has become a central component of the Australian retirement system. However, trends such as an aging population, government fiscal pressures, and equitable treatment under the tax code are driving active policy debates about the broader retirement system. For example, in 1980, about 1.4 million Australians over 65 were supported by about 9.6 million workers – nearly seven workers for every retiree.²³ However, there are now about four workers for every retiree and by 2040 that figure is projected to fall to three. This trend is putting increased fiscal pressure on the Age Pension and heightening the importance of private retirement savings, including superannuation. Because assets held in super funds count against eligibility for an Age Pension, Australian government pension spending is among the lowest of OECD countries – just 2.6% of GDP compared to about 7% for the US – and expected to decline as a contributor to retirement income.²⁴

Tax treatment of super funds has also been the subject of contentious policy debates. Forgone tax revenue – called a “tax expenditure” – related to super funds outpaces all other tax expenditures in the Australian federal budget.²⁵ The expenditure also experienced 14% annual growth between 2020 and 2024 and is expected to grow 4% annually over the next three years. Treasury estimates indicate super fund tax benefits will cost nearly $60 billion AUD in this fiscal year, a significant sum for a federal budget of about $786 billion AUD.²⁶ Some have also criticized the disproportionate tax benefit to wealthy households.²⁷ For example, a 2024 analysis found that the top 10% of earners received 32% of the tax benefit for super fund contributions and 43% of the benefit for super fund earnings.²⁸ The government has responded to these critiques by considering reducing the tax benefits for super funds with more than $3 million AUD in assets.²⁹

Finally, recent super fund failures have raised concerns about investor protections and the role of government when funds fail. The collapse of First Guardian Master Fund and Shield Master Fund in 2024 resulted in about 12,000 investors losing more than $1 billion AUD in assets.³⁰ Australian regulators are investigating the conduct of fund managers as well as compensation schemes for financial advisors that steered investor savings into the funds. Meanwhile, lawmakers and the public are criticizing regulators for not acting more quickly. A review conducted by APRA and ASIC also found shortcomings in the systems fund managers maintain for giving advice to retirees.³¹ The growing size of super funds has also raised concerns about potential systemic risk concerns.³²

Considerations for the US

The US faces many of the same challenges Australia sought to address through superannuation, including an aging population and government fiscal pressures, which may make such a program appealing, particularly to younger workers. Facing similar challenges, the UK, for example, implemented its own mandatory retirement scheme in 2012.³³ The Administration has not yet said how it might seek to design or implement such a system, but proponents of adopting the system argue that it would strengthen retirement security, broaden coverage to workers who currently lack access to employer-sponsored plans, and reduce long-term fiscal pressure on Social Security. However, Congress and the Administrations would have to consider several key questions about a potential transition and its impacts.

Impact on Tax Burdens and Social Security Benefits

US employees and employers currently each pay 6.2% (totaling 12.4%) of an individual’s earnings (up to a limit) into the Social Security Trust Fund. Social Security’s Old-Age and Survivors Insurance Trust Fund currently faces a deficit, which is projected to leave it unable to pay full benefits beginning in 2033.³⁴ This deficit would be significantly exacerbated if superannuation were implemented by shifting some or all of the employer’s share of Social Security taxes into an employee’s super fund account. Alternatively, if employers were required to maintain their Social Security tax obligations while also contributing to super funds, at least during a transition period, superannuation could represent a substantial tax increase.

Similarly, if superannuation were intended to offset reductions in Social Security benefits (or transition workers below a certain age out of the Social Security system), employees would likely object to continuing to pay the current Social Security tax rate knowing they would not receive full benefits or would not be eligible for Social Security. At the same time, any reduction in the employee Social Security tax rate would likewise accelerate the trust fund’s insolvency.

It is also unclear how the introduction of mandatory superannuation would impact existing retirement savings vehicles outside of Social Security (e.g., the 401(k)). Because offering this benefit is currently optional for US employers, they may choose to eliminate or reduce it to avoid paying into two retirement accounts.

Design and Cost of Tax Benefits

Policymakers in Congress and the Administration would need to decide what tax benefits would be associated with super funds. Australian super fund tax policy differs significantly from the US approach to taxing accounts such as 401(k)s and IRAs, which are generally pre-tax vehicles. And while tax advantages provide incentives for retirement savings, they also reduce tax revenues, an important consideration as the US faces a debt crisis. Depending on their design, the tax advantages may also benefit higher-income individuals disproportionately.

Account Types and Administrators

Policymakers must also consider what types of accounts would be allowed in a US superannuation system and who would be allowed to administer them. Perhaps the simplest approach would be to direct mandatory employer retirement contributions into existing retirement savings vehicles (e.g., 401(k)s or IRAs) or expand access to the Federal Thrift Savings Plan to non-Federal employees.

If policymakers instead opted to allow separate superannuation accounts, they would need to consider how the accounts would compare to existing alternatives (and potential investor confusion) and what providers would be allowed to offer them. It seems unlikely, for example, that policymakers would permit SMSFs as designed in Australia given the significant administrative and oversight challenges involved. Policymakers would also need to decide whether existing retirement accounts could be converted into superannuation funds and how to treat conversions for tax purposes.

Protection of Investors and Retirement Funds

One notable feature of the Australian superannuation system is the wide variety of investments that funds may invest in, including relatively risky or illiquid assets such as physical property and crypto. Some funds are also allowed to borrow funds to make investments. Recent Australian examples have demonstrated that this flexibility can also leave investors exposed to significant losses. Australian investigations also identified predatory behavior and conflicts of interest among investment providers, marketers, and financial advisors, raising questions about what regulations and governance requirements would be needed to protect investors, including regulation and standards for fiduciaries (Australia has a strict “best financial interests” standard).

Unintended Consequences

Policy changes to a system as complicated and large as the US retirement system and tax code will inevitably have unintended consequences that would require ongoing monitoring and nimble responses by policymakers. Without such oversight, even well-intentioned reforms could destabilize financial markets, erode retirement savings, and exacerbate government fiscal pressures.

Conclusion

It is unclear how seriously the Administration is considering pursuing an Australian-style superannuation system in the US. However, the Administration would likely face significant political opposition and implementation challenges if it were to pursue superannuation. Indeed, previous efforts to allow individuals to direct a portion of their Social Security taxes into private investment accounts have failed due to public opposition.³⁵ The potential for significant increases to employer costs also raises concerns about the potential impacts on businesses.