Social Security and You: Social Security in Australia
A couple of months ago, my wife and I returned from a six-week trip to Australia that also included a roundtrip cruise from Sydney to New Zealand. I had been planning that trip for about a year. And little did I know during that entire planning process that the dates I chose would work out so well. We went there after the worst of the bushfires that devastated parts of Australia and before the coronavirus devastated the world! We really were extremely lucky.
Anyway, shortly after we returned from the trip, I mentioned in a column that I met more than a few old-age pensioners from Down Under. And I said I thought it would be interesting to compare their Social Security system to ours and that I would do so after conducting a bit of research. Well, little did I know what I was getting myself into.
And before I get into all that, let me make this point: I'm always amazed by the number of people who think the concept of a Social Security system is unique to this country. Or they figure that we, and maybe some of those "socialist" Scandinavian countries like Sweden and Norway, are the only places that have Social Security.
Actually, the opposite is true. Almost every country on this planet has a Social Security system in place for its citizens. And many of them had such programs long before we finally got around to passing Social Security legislation in the 1930s. In other words, people around the world recognize that a civilized society must do something to provide a base of support for its elderly citizens, for people with disabilities and for the dependents of a worker who has died. And the mechanism every country in the world uses to do this is a social insurance system.
I have a book on my desk called "Social Security Programs Throughout the World" that provides a very brief overview of the system in each country. I counted. There are entries for 165 countries. And one thing I've always found rather remarkable is how similar the Social Security programs around the world are. They are usually financed through a dedicated payroll tax, and they provide retirement, disability and survivors benefits. But some countries do things a little differently. And I've learned that Australia is one of them. So here is a very brief overview of how Social Security works in what my favorite author, Bill Bryson, calls "the Sunburned Country."
Australia is one of many countries that set up a Social Security system long before we did. They passed a law establishing old age and disability pensions in 1908. They added survivors benefits in 1942.
One of the major differences between their system and ours is in how it is financed. The money to pay Australian Social Security benefits comes out of general tax revenues. In other words, there is no dedicated payroll tax. Now, before my readers get all excited and start wishing they lived in the land of kangaroos so they could get a pension without paying direct taxes for it, they should know there is another big piece of the Australian Social Security puzzle that does involve payroll taxes. More about that in a minute.
The general tax-funded Social Security program gets Australians a rather modest monthly retirement benefit that maxes out at about $2,000 for an individual or $3,000 for a couple. In American dollars, that converts to $1,233 for a single person or $1,849 for a couple. And remember, that is the maximum benefit payable. For comparison, the current maximum Social Security retirement benefit in the U.S. is $3,011 per month. And there is no marital cap. In other words, a husband and wife, both of whom had maximum Social Security earnings, would each get $3,011 per month, or $6,022 combined.
And here is another interesting twist to the Australian Social Security system. The benefits are means-tested. In other words, the more income and assets you have, the less money you get from Social Security.
I know from all the emails I get from readers that many Americans think our Social Security system should be means-tested as part of any package of Social Security reforms. But what they usually mean by that is that the Bill Gateses and Warren Buffetts in this country shouldn't get Social Security. As I've pointed out many times, you could cut every billionaire (and even every millionaire) in the U.S. off Social Security, and it would hardly make a dent in the system's long-range financial picture.
To make means-testing work, you would have to do what the Australians do. And that is a pretty severe set of rules. There are both income and asset restrictions. They are WAY too complicated for me to explain in this short column. But many folks with even a modest amount of income and assets start losing some or even all of their Social Security benefits.
I can give you one example. I got to know a retired couple in Australia fairly well. In fact, we became good friends, and we have been exchanging emails regularly since we got back from our trip. This husband and wife are moderately well-off. They certainly are not rich. They would probably be considered upper-middle class if they lived in this country. And because of the value of their home and some other assets, they don't qualify for any Social Security benefits.
But this is where we get to the other half of the Australian Social Security picture I mentioned earlier. In 1991, the Australian government set up something called the Superannuation Guarantee. All employers are required to contribute to this fund, and employees are strongly advised to contribute. Frankly, I am a little bit fuzzy on how this fund operates, but I think it is something like a semicompulsory individual retirement account. So, an employee participating in this fund will gradually build up money, often into the hundreds of thousands of dollars or more by the time they retire. And when they do retire, they can draw money out of the fund. The couple I mentioned above who get no benefits out of the means-tested Australian Social Security system get a fairly nice income from their Superannuation Guarantee fund.
There is obviously much more to the Australian Social Security system than I was able to discuss here. But I'm simply out of space. In next week's column, I am going to discuss some suggested reforms to our Social Security program that involve some of the features of the Australian system. Stay tuned.
If you have a Social Security question, Tom Margenau has the answer. Contact him at firstname.lastname@example.org. To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.