Best of Australia

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Who Has the Best?

Australian Superannuation versus US Pension Funds

aust us puzzle

Sometimes it is good to look outside our everyday experience and review a benchmark overseas. We found some real surprises when we started to compare USA and Australia. For a start Australia has only 25 million people yet it has the 4th highest pension fund pool in the world. Not as many dollars as USA but USA has a much larger population. So how did the Australian money pool get to be so big?

The answer lies in the differences in the pension system or as the Aussies call it, superannuation. The superannuation system is compulsory and employers have to put 9.25% of wages into super. That approach has already made Australian pension funds the fastest growing in the world.

Do you think that is big? The Australians have a plan to move the 9.25% up to 12% of income. They must be planning to live a long time…

Of course all that extra cost for employers could drive up unemployment. So far, so good over there but that will be a point to watch.

Another interesting aspect of Australia is how they have super funds that do not pay commissions to financial planners. These profit-for-members funds have had the best returns in recent years, you can compare here.

http://www.industrysuper.com/choose-a-fund

Where does the US win in this comparison? We are best on the tax breaks. Making a pre-tax contribution to a 401(k) means no federal income tax. In Australia contributions are taxed at 15%. Once the politicians make something compulsory they don’t have to provide tax breaks any more….