Australia’s Secret Weapon

Despite ranking 56th globally in population, Australia’s total retirement funds are the 5th largest in the world. On a per capita basis, Australia has over double the numbers of the UK and $20,000 more than the U.S. How? It’s all thanks to Australia’s secret weapon: superannuation.

Australia’s 2022 population is only the 56th largest in the world. That might seem irrelevant on the global scale, yet Australia’s financial strength is largely unmatched. At the end of 2021, Australia’s total retirement funds ranked 5th in the world, at approximately $3.9t, according to the Thinking Ahead Institute’s annual report. The U.S. total was $49t, the UK was $5.4t, and Canada was $4.8t. In other words, retirement assets sit at $148,000 per person for the U.S., $80,000 for the UK, $127,000 in Canada, and a whopping $188,000 in Australia.

How does Australia consistently punch above its weight? There are a number of factors, but our focus is on an experiment that’s been going for nearly 40 years. This experiment is superannuation.

But before we dive into the topic, a brief definition of Australian superannuation. Superannuation is a compulsory system that requires employers to place a minimum percentage of an employee’s income into a fund as part of their benefits. This fund can either be managed by an industry or retail super fund, or you can opt for more control with a self-managed super fund (SMSF). For more information on SMSFs, check out our Stake Super blog article: How One SMSF Myth Is Holding You Back.

The History Of Australia’s Secret Weapon

If Australia’s economy has a secret weapon, it’s superannuation. The system as we know it can trace its origins to 1976, when the Hancock Inquiry recommended creating a ‘partially contributory, universal pension system with an earnings-related supplement’. But Australia wasn’t ready for what would become superannuation, and the recommendations of the inquiry were rejected by the Fraser Government in 1979. It would take the Hawke Government in 1983 to breathe life into the program.

It was under Hawke that the government openly expressed its support for the principles around employee superannuation. The world’s first industry super fund, for the building industry, was created. However, workers wouldn’t receive compulsory super until a deal struck by the government in 1986.

Under the agreement with the Australasian Council of Trade Unions (ACTU), employers were required to pay a universal 3% annual contribution into an Industry Fund. An attempt by employer groups to block this payment plan was denied by the High Court, and within a decade superannuation fund assets would climb to $41b.

Despite rapidly growing, super was still not as widespread as it is today. By 1988, only 51.3% of the employed population was covered. By December 1990 this number had increased to 64%, with $123b in total assets. Federal Treasurer John Kerin in 1991 announced the creation of the Superannuation Guarantee (SG), which would extend coverage to 72% of employees, and increase contributions from 3% to 9% by 2002.

Between 2002 and today, a lot of reforms and other milestones have been reached. The World Bank endorsed it as the world’s best practice in 1993, and assets surpassed $1t in 2007. It’s clear that the superannuation system has not only provided Australians with better financial security, but has also helped the country to punch well above its weight in the global economy.

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