US President Donald Trump announced a plan for a radical change to the country's retirement system. Speaking in the White House Rose Garden on July 6, Trump said his administration is working on a proposal to implement Australia's mandatory employer-contribution retirement model, known as 'superannuation,' in the US and that they will discuss the matter with Congress.
While introducing new investment accounts for children, which he called 'Trump accounts,' the President noted that the Australian system could be a more suitable solution for adults. "This could be a great solution, if we can implement it. We will try very hard," he said.
What is the Australian model?
In Australia, employers are required to contribute 12 percent of an employee's salary into individual retirement accounts. These funds are directed into investments, and employees can access their savings after age 60. The system also includes a means-tested state pension for those with insufficient savings.
The current Social Security system in the US operates differently. According to MarketWatch, both the employee and employer each pay 6.2 percent of earnings into the system. These collected contributions are directly transferred to current retirees, and there are no individual savings accounts.
Social Security concerns take center stage
Trump's proposal is facing criticism amid the financial troubles of the Social Security system. Max Richtman, President of the National Committee to Preserve Social Security and Medicare, said, "We advise the President to focus on Social Security rather than tinkering with private retirement accounts partially inspired by the Australian model." Richtman stressed that the program has been successful for over 90 years but that its financial foundation needs strengthening.
According to the latest trustees' report, Social Security reserve funds could be depleted in about six years. In such a scenario, all retirees could face a roughly 22 percent cut in their benefits.
The Trump administration had previously focused on retirement issues. In his February address to Congress, Trump pledged to strengthen the financial sustainability of the retirement system, and two months later he signed an executive order providing access to millions of workers whose employers do not offer a retirement plan.
Experts note that the appeal of the Australian system lies in its being fully funded and its resilience to demographic changes. Alicia Munnell, founder of the Center for Retirement Research at Boston College, commented, "The state pension guarantees that no one falls below an acceptable standard of living."
