Embodying elements that appeal to both the right and left—individual
responsibility and state paternalism—and emerging alongside growingfiscal
and demographic pressures, Australian superannuation has come to be seen
as a policy triumph.‘One of thefinest examples of progressive social policy
that a nation can introduce’, declared Fiona Reynolds, head of the Australian
Institute of Superannuation Trustees (St Anne 2012, p. xi). A former editor of
theAustralian Financial Review, David Love, wrote that compulsory super-
annuation was among‘the most sweeping and beneficial set of changes in
financial policy,financial engineering, and social policy attempted in any
democracy during the 20th century’(Love 2008, p.1). Mercer’s2014Global
Pension Index put Australia second, behind only Denmark, in a comparison
of the‘sustainability’,‘integrity’,and‘adequacy’of twenty-five countries’
retirement systems. Endorsed by the World Bank as early as 1994 (World
Bank 1994), Australia’s superannuation scheme is seen as a model for coun-
tries anxious to avoid thefiscal burdens associated with ageing populations
and pay-as-you-go social security. Similar privately-managed DC systems
were rolled out in Argentina, Bolivia, Colombia, Hungary, and Poland in
the 1990s.
Despite this acclaim, the efficiency and fairness of superannuation have
come under increasing scrutiny. This chapter explains the nature, impact, and
origin of Australia’s superannuation system and critically assesses it against its
claimed benefits. It concludes reform of its defects has proceeded at glacial
pace, in part because two powerful vested interests—the trade union move-
ment and the financial services sector—form a united front against any
changes that would threaten their influence or fees.
10.1 The‘Pillars’of Australia’s Retirement-Income System
English-speaking countries share many institutional similarities owing to
their common law British heritage. But retirement policy is emphatically not
one of them. National retirement income systems are typically classified using
the World Bank’s‘pillar’framework (World Bank 1994).‘First pillars’, funded
from general taxation, are designed to alleviate poverty and are either means-
tested or paid universally (regardless of means). ‘Second pillars’mandate
contributions to defined benefit (DB) or DC funds, which can be publicly or
privately managed, and aim at replacing an individual’s work–life income in
retirement. This is where most of the international variation is observed.‘Third
pillars’are tax concessions for voluntary saving specifically for retirement.
When it comes to retirement systems, among OECD nations, Australia has
most in common with Chile and Mexico. These three countries stand out for
having means-tested public pensions complemented by mandatoryprivately
We Must All Be Capitalists Now