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Experts have long held up Australia’s 32-year-old “superannuation” system as the retirement model to follow. But as countries all around the world are bracing for a “silver tsunami” of aging baby boomers, even Australians worry they don’t have enough saved.

Today, host Sarah Holder and Bloomberg’s Amy Bainbridge discuss what makes this system so super — and why it’s still falling short.

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Here is a lightly edited transcript of the conversation:

Sarah Holder: All around the world right now… an economic crisis is festering. It’s a slow-moving disaster that almost nobody seems to have figured out how to address. But also… a problem that no country can afford to ignore. And attempts to do anything about it… have not gone well. 

BTV: Yelling from protests… 

Holder: The crisis? Retirement. And the tape you just heard? The French. Retirement-related protests have popped up across the world in the last few years. But the ones in France last year were particularly dramatic. Tens of thousands of Parisians took to the streets to protest President Emmanuel Macron’s efforts to raise the retirement age from 62 to 64. Bloomberg News talked to few of them:

Jules: My name is Jules. I'm 21 years old. We consider that the government want to make us work until death. This is scandalous.

Alain: I'm Alain, and I was 71. In solidarity with young people, it's a very bad reform.

Matthew: It is not the time. It's not a good idea. My name is Matthew. I'm 47 years old. I'm an English teacher. And, uh, we're protesting because we don't want to spend the rest of our life, uh, just working without retirement.

Holder: Despite the massive backlash… Macron and the French government held firm. They were facing an economic problem countries all across the world are grappling with: their populations are getting older and living longer… And it’s costing more and more public money to support them all after they stop working. It’s related to what some people call… the “Silver Tsunami.”

Amy Bainbridge: Yes, the “Silver Tsunami,” it's a global phenomenon. So the number of people that are in the workforce versus the number of people that are now leaving the workforce. This is a really big challenge.

Holder: That’s Bloomberg’s Amy Bainbridge. She lives and works in Australia, the one country that might have actually created a defense against the “Silver Tsunami”. They call it… the super system. That’s not a value judgment. It's short for “superannuation.”

Holder: And can you just tell us what superannuation means? Why is this system called that?

Bainbridge: That's such a good question. Actually, I've never really gotten to the bottom of exactly why we use this actual name, because really it's pensions.

Holder: It sounds so grand. It's a superannuation.

Bainbridge: It’s— absolutely. 

Holder:  Today on the show: Australia’s super system… how it works… and what the rest of the world can learn from it. I’m Sarah Holder… and this is the Big Take from Bloomberg News.

Holder:  Amy is based in Melbourne, where she reports on Australia’s trillion-dollar pension and retirement system. She’s also part of it. 

Holder: Do you remember signing up yourself and, and signing up? And can you walk us through what that felt like?

Bainbridge: So I, one of my first proper jobs, I was still at university, but I worked at a local newspaper as a copy kid and I was just put automatically into a superannuation fund. And I just remember receiving the paper at the time and just not really understanding what it was all about, but also being a bit irritated to see that this money was going somewhere and that I couldn't access it.

Holder: At the time, Amy says she wasn't looking at the big picture. But now, she's grateful she didn't have a choice about whether her money was being saved for retirement.

Bainbridge: And now I think oh gosh, I'm so glad we have this compulsory system sometimes because I don't know that I necessarily would have made a great decision you know earlier in my career where money is not— money’s pretty skint. 

Holder: But it wasn’t her decision to make. In Australia, if you work, even part time, your employer has to set extra money aside into a retirement fund in your name. It’s because of a system that was put in place not all that long ago.  

Bainbridge: I'll take you back to like the 1980s.

Holder: Back then ... Australia's economy was struggling. Inflation was rising and people were watching their retirement savings go up in smoke. Workers were hurting. So, some of the country’s most powerful unions took on the issue. They struck a deal with their employers. Instead of a salary hike, employers would pay a portion of each worker’s wages into a retirement fund.

Bainbridge: And I've spoken to people that were involved at the time. They went workplace by workplace in their negotiations. And then some superannuation funds were set up as we call them to cater for those workers.

Holder: Amy says the idea spread sector by sector.

Bainbridge: Particularly it started in the building and construction industry to get superannuation as part of broader wage negotiations. So then it was transport and health and community services and hospitality sectors. And then there was this huge shift where there was national legislation a few years later that took effect in 1992.

Holder: The legislation required all employers to contribute to the retirement pension system… for all workers. Paul Keating... a former treasurer... was the prime minister back then. He had championed the plan and here he is talking about it in parliament, just after it passed.

Paul Keating: Mr. Speaker, this House last night passed the superannuation guarantee levy and doing so it has entrenched in legislation a great reform which will be of great benefit to coming generations of Australians.  

Holder: You can hear how proud he is of the policy – even in the face of some jeering from his opposition.

Paul Keating: Mr. Speaker, for the first time in our history, well in advance of reform in other advanced industrial countries, ordinary Australians will be able to build a decent nest egg for their retirement, as a result of the policies of the Labor movement. 

Holder: So the system was in place. And at first… employers were only required to put a little bit aside. 

Bainbridge: It was the equivalent of 3% of worker wages, but that has steadily grown over the years. And now it's become, you know, a very stable system and it's growing at a really fast rate.

Holder: Today, the rate is 11%. And it'll go up to 12% by next July. Keep in mind, this is on top of a salary. So come July 2025… if a worker in Australia is being paid 100,000 dollars per year… their employer will have to put an additional 12,000 dollars into a retirement fund of the workers’ choosing. There’s a whole menu of investments to choose from. Some funds are high-risk, high-reward, others are slow, safe and steady, others focus on environmental impact. And after 32 years… many of the companies that run those funds have gotten huge.

Holder: How big are they? It seems like if Australia has this well-humming pension system that's putting a lot of money aside every month, these funds must be pretty significant.

Bainbridge: They are. Yes, they absolutely are. So the biggest fund Australia has is called Australian Super. Uh, it has 330 billion Australian dollars under management. So they are getting big.

Holder: If you pool all the funds together, Australia's retirement system is the fourth-largest in the world. It's also the fastest-growing.

Bainbridge: From 2002 to 2022, under the data that we've been given, our system grew by 631%. The assets are forecast to top 13 trillion dollars by 2048.

Holder: So if Australia’s super system is so flush, why are many aging Australians still worried they won’t have enough? That’s after the break. 

Holder:  We're back. Before the break, we looked at the creation of Australia’s pension fund, which some experts see as a possible solution to a looming retirement crisis. Over the next three decades, the global gap between what retirees have saved and what they’ll need to live is projected to reach $400 trillion. That’s larger than the entire global economy. The problem has also caught the attention of some of the world’s biggest financial institutions. 

Larry Fink: Over the past year, I heard more and more conversation about retirement, the retirement crisis from many parts of the world, from middle class developing countries to developed countries.

Holder: Larry Fink, CEO of the investment giant BlackRock, wrote about this issue in his annual letter and he came on Bloomberg to talk about it. 

Fink: We're aging. We're, you know, we're all living longer, and I think there is not a dialogue in America or most places about, can we afford that longevity? And our entire retirement system was based on statistics that were created 50 years ago, whereby most Americans retired between 60 and 62 then, but most Americans then passed away at 67. And today, statistically, a couple 60 years old, in good health – one of them is gonna live over 90.

Holder: Fink mentions Australia’s model as a possible solution for the issue. And he's not the only one. Amy told us that Paul Schroeder, the CEO of Australia's biggest fund, gets asked for advice all the time.

Bainbridge: So he and others I've spoken to regularly are getting phone calls from people in the US at varying levels of government or in varying levels of the financial industry and in the UK saying, so, you know, how did you do it? And Paul Schroeder said to me, the best time to do this was 30 years ago, so it's not great news really, okay.

Holder: Uh oh. 

Bainbridge: But, we know — I've spoken to the pensions regulator in the UK and they really see the compulsory nature of our system as being a real look into the future.

Holder: Another reason UK regulators might envy Australia’s “super” model: it takes a lot of pressure off the country’s public pension system.

By 2030, Australia is projected to spend 2.4% of its GDP on retirement benefits. The US is projected to spend more than twice that. And the UK, nearly three times as much. And that gap is only projected to widen in future decades.But Australia’s system still has its challenges. It was put in place 30 years ago, after all. Who works and the way they work have changed profoundly since then.  

Bainbridge: One of the, the big bugbears I guess of one of the industry associations is that when superannuation was set up, it was basically designed for a man, usually — a person, but a man, who had an unbroken career working full time for their entire career. And then you retire and you have a nice savings. But the reality is that while that happens for some people, for a lot of people, it doesn't. Some industries, you know, you'd simply get paid less.

And so what happens to those people? They're just naturally not going to have as big a balance. You need to make sure that it's easier for people to make additional contributions where they can, if you have a broken work pattern, if you need to care for others in your family and take time out of the workforce.

Holder: One of the ways the super system reinforces pay disparities… is along gender lines. The average balance for every age group is lower for women.

Bainbridge: Now that's partly because there is a gender pay gap here. And the way that retirement savings are calculated is: as a percentage of somebody's income. So of course, if you earn less, you're going to have less retirement savings. But also if you, say, take a pause from your career or you work part time, which a lot of women do here in Australia, then that can impact the balance overall.

Holder: So how much money are individual Australians getting from the super system when they retire? 

Bainbridge: We've done some calculations here at Bloomberg and people, there's still about two thirds of people or all accounts of people who are like in the 60 to 64 age bracket that have less than 200,000 Australian dollars.

Holder:  200,000 Australian dollars is about 130,000 US dollars. 

Bainbridge: And it's actually not a lot when you think that you're still going to have to live for another few decades.

Holder: The system is expected to get better for younger generations, who will spend more of their working life with employers putting more money aside.

Bainbridge: So I guess the hope will be that in coming years, those balances really will start to reap the benefits of having this higher contribution rate of 12%, which it will be in the middle of next year and really fueling that savings as well as – hopefully – decent investment returns for people, depending of course on which investment option they're in.

Holder: Amy told us, industry experts are advocating for better financial education that could help people make their money last longer – but it can be hard to give useful standardized guidance. Circumstances and expenses are really different for different people, and cost of living can vary a lot. 

Bainbridge: So it's really difficult here for people to get the advice they need and to be pointed in the right direction. It's something that the industry says, I mean, I've spoken to so many executives that all say we've been great at accumulating money. But actually, the next bit is the really big challenge: it’s how do you get people educated on how much money they need, making additional contributions perhaps during their working life, but also how to make that money last and what you should do or what your strategy could be to make sure you don't run out too quickly.

Holder: Australia’s retirement system: not perfect, but better off than most. The main secret to its success so far? Don’t make saving a choice, for companies or for workers…force people to save. It might not be enough… but it is a start.

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