Australia has a pension system based on individual capitalization called “Superannuation,” in which workers allocate 9% of their income to personal retirement accounts (rate that will increase to 12% by 2025).

​

The Australian system was created in 1992, following the Chilean capitalization system established 12 years earlier, in 1980.

​

The Center for Retirement Research at Boston College, directed by a former official from Bill Clinton's government, published a study praising it: “Australia's retirement system is considered one of the best in the world. It has achieved high rates of individual savings and broad coverage at a reasonably low cost to the government.”

​

As I wrote my thesis on the Australian system, I can confidently state that the author does not exaggerate. The Boston College study continues: “More than 90 percent of employed Australians have savings in a Superannuation account, and the total assets in these accounts now exceed their Gross Domestic Product. Australia has been extremely efficient in achieving the key objectives of any retirement system.”

​

The study includes some justified criticisms. The system can be manipulated by those seeking to take advantage of the government's means-tested retirement: “Australia's means-tested age pension creates incentives to reduce one's own ‘means’ in order to receive a greater benefit. This situation is especially problematic because workers can access their Superannuation savings at age 55, ten years before becoming eligible for state age pension benefits at 65. This possibility creates an incentive to retire early, live off those savings until eligible for the age pension, and receive a greater benefit, a practice sometimes called ‘double dipping.’”

​

The author warns that a “defined contribution” account leaves the worker exposed to the ups and downs of the market, while a “defined benefit” account promises a specific payment and eliminates that uncertainty.

​

But the problem with defined benefit accounts is that they almost inevitably promise more than they can deliver. That seems to be true whether they are supposedly based on real savings (like private company retirement plans) or on pay-as-you-go taxes (like Social Security).