So what’s this about Trump and the Aussie retirement system?

The answer to Social Security's funding crisis is at our fingertips, but demands political courage

President Donald Trump recently was speaking at a press event touting tech billionaire Michael Dell’s pledge of $6 billion in supplementary funding toward so-called “Trump accounts,” which already include a $1,000 federal starter contribution for newborns. Dell’s efforts would add an additional $250 to each account.

At that event, in response to a reporter’s question, the President said:

“We are looking at programs. We’re looking at, there’s a certain Australian plan that people are liking and they’re talking about. You know what I mean? There’s a plan where, not for children necessarily, but it’s for people. Working people. And we are looking at other things. Different from this. I think this is very unique. But different from this. But very important... We’re looking at it very seriously. It’s a good plan. It’s worked out very well.”

Now, I suspect that what the Trump administration is looking most closely at is Australia’s Superannuation system, in which every employee is offered and enrolled in a workplace retirement plan.

But where things really kick in is when a Superannuation-style system of universal retirement plans is combined with Australia’s Age Pension, which provides a means-tested benefit that effectively guarantees against poverty in retirement. I advocated for an Australian-style Social Security reform in my recent book, The Real Retirement Crisis. But here I’ll provide a bit of detail on what Australia’s retirement system looks like and why it’s worth the Trump administration and Congress considering it as a model for Social Security reform. (But also check out a thoughtful contrary take from my friends Romina Boccia and Ivane Nachkebia of the Cato Institute.)

Australia’s retirement system consists of two main parts. The base of the system is the Old Age Pension (typically simply called the “Age Pension”), which is a means-tested anti-poverty benefit available beginning at age 67 and financed by general tax revenues, which in the U.S. context means mostly income taxes. To receive benefits an individual must have been a legal resident of Australia for at least 10 years. The maximum annual Age Pension benefit is about $20,000 US for a single individual and about $30,000 US for a couple. This is what a senior would receive if they had no other savings or sources of retirement income.

(Note that interpreting all these dollar levels is tricky, because the U.S. has substantially richer seniors than Australia. In some figures below I use a different approach.)

The Age Pension works in combination with the second pillar of the Australian retirement system, which is called Superannuation. The Superannuation system consists of universal employer-sponsored retirement plans, most of which are defined contribution retirement accounts similar to 401(k)s. Employers are required to offer such plans and to contribute an amount equal to 12% of employee wages, with wages subject to the employer contribution capped at about $167,000 in US dollars. This cap is not very different from Social Security’s maximum taxable wage, which in 2025 is $176,100. Employees do not contribute to Superannuation except on a voluntary basis to supplement their employer contributions, for which they can receive a tax break.

The Age Pension and Superannuation work largely separately, until the time a person retires. At that point, the Age Pension is calculated based upon the retirees’ Superannuation balance, other assets and other sources of income.

For instance, for a single individual who does not own their own home, the full Age pension is payable when assets are worth less than about $383,000 US, with the Age Pension gradually reduced to zero when assets exceed about $742,000 US. There are different thresholds for couples and for homeowners. The Age Pension also is reduced based upon income. For instance, for a couple the Age Pension begins being reduced at an annual income of about $6,500 US, phasing down to zero at an annual income of about $67,000.

At present, about 45% of Australian seniors receive a full Age Pension with another 30% or so getting a partial benefit. But these percentages are projected to decline as savings in the Superannuation system, which began in 1990, continue to grow.

What would benefits from an Australian-style reform look like compared to Social Security?

The chart below, drawn from OECD modeling, shows the benefits paid by Social Security to individuals with different levels of lifetime earnings. For clarity, the level of benefits is represented as a percent of the national average wage at the time of retirement. So, unlike the dollar figures shown above, these OECD numbers show the level of benefits relative to each country’s own average wage. So, for instance, a person who earned the average national wage over the course of their career would receive a Social Security benefit equal to about 40% of the national average wage at the time they retired. (So, note that these figures don’t show a replacement rate in the sense of representing a given person’s benefits as a percentage of that person’s past earnings. Since average wages increase over time, that individual’s replacement rate would be higher.)

Now look at the same chart for Australia, showing benefits from both the Age Pension and Superannuation: the overall pattern is very similar, even if the sources of benefits differ. Lower income seniors receive more of their benefits from the Age Pension – about 62%, for someone who earned half the national average wage over their career – and less from Superannuation.

But as you move up the income ladder, the composition shifts: a middle-wage individual receives 42% of their benefits from the Age Pension, while someone earning 1.5x the average wage over their career receives 12% of their benefits from the Age Pension and 88% from their Superannuation plan.

Nevertheless, the pattern of combined benefits in Australia isn’t very different from Social Security.

In big-picture terms, how does Australia’s Age Pension and Superannuation differ from the U.S. retirement system?

To start, Australia offers a much stronger floor of income in retirement: the maximum annual benefits paid from Supplement Security Income (SSI) benefits in the U.S. – SSI is the American version of a need-based floor of income – would be about $11,600 for a single retiree and $17,400 for a couple. So the minimum income provided under Australia’s Age Pension is roughly twice that of the U.S.

(It would be helpful if the OECD figures showed benefits for individuals under 0.5 times the national average wage. In the U.S., about 18% of workers earn far less than this, with lifetime earnings averaging about 0.25 times the national average wage. For this group, an Australian-style framework would likely provide superior protections against old-age poverty.)

For those concerned about old-age poverty, Australia’s approach may offer a model to consider. The reality is that, at the margin, Social Security doesn’t do a lot to reduce elderly poverty, meaning that increasing benefits through the conventional benefit formula doesn’t accomplish much. The reason is that roughly halve of poor seniors already receive SSI benefits and increases in Social Security are offset against SSI on a dollar-for-dollar basis. So an extra dollar of Social Security may not change their total incomes at all.

But, while Australia’s Age Pension offers a higher floor of benefits, the Age Pension also offers a much lower ceiling. The maximum Age Pension benefit for a couple is about $30,000 while the maximum Social Security benefit for a couple retiring this year is about $96,000. Moreover, that high-income couple currently slated to receive $96,000 in annual Social Security benefits is also likely to have assets or other sources of income in retirement, such that, if they were living in Australia, they almost certainly wouldn’t receive the full Age Pension and might not receive anything at all.

But, as I see it, Australia’s much lower ceiling on government-paid retirement benefits is a feature, not a bug. As both Social Security and the federal budget as a whole face a multi-trillion-dollar day of reckoning, policymakers will have to think about things the federal government currently does that it will no longer do in the future. To me, paying $100,000 annual Social Security benefits to high-income couples who have ample capacity to save more for retirement on their may be the quintessential example of non-essential government activities. If you can’t reduce Social Security benefits for the richest retirees on the face of the earth, where can you reduce federal spending?

Australia’s Age Pension also differs from Social Security on the funding side: while Social Security is funded by at 12.4% payroll tax on earnings up to $176,100 in 2025, the Age Pension is funded from general tax revenues. Those differences surely arise in part from the different roles the play: Social Security was designed to resemble a giant pension system, which are typically funded from workers’ wages, while the Age Pension is like America’s Supplemental Security Income on steroids, and SSI is itself funded from general revenues.

But there’s another reason why Australia’s Age Pension can be funded from general revenues while Social Security is funded from a broad tax on wages: the Age Pension is just much smaller than Social Security. The Age Pension currently costs Australia about 2.5% of GDP, with costs projected to fall as the Superannuation system fully matures. Social Security’s retirement program, by contrast, costs 4.7% of GDP today, with costs projected to rise to 5.5% of GDP by around 2060. It’s just hard to get 5.5% of GDP for one program from general tax revenues.

Australia’s two-pronged approach represents a better division of labor on retirement income provision: government focuses on those in need, providing a near-guarantee against poverty in old age. But private savings do more work on income replacement, which is what allows seniors to maintain their pre-retirement standard of living once they stop working. Anyone who has looked at governments’ records at pre-funding future retirement benefits, or for that matter the private sector’s provision of charitable benefits to poor retirees, should conclude that this division of labor makes sense.

This division of labor is found in most English-speaking countries, with the important exception of the United States. The U.S. runs an increasingly-expensive and increasingly-generous pension program for middle-and upper-income retirees. Census Bureau research shows that the richest tenth of seniors receive almost as much benefits as the bottom three-tenths put together, despite having zero risk of poverty. It’s paying for rising benefits for middle and upper-income households, not keeping seniors out of poverty, that makes Social Security reform such a daunting task.

Yes, those rich seniors paid for their benefits, so we shouldn’t pull the rug out from underneath them. But should government keep promising more and more to a group for whom these benefits present no strong public purpose, and financed by higher taxes on the very people who will receive those benefits? There just isn’t a case for it.

Or should Social Security reform, over a period of decades, ramp down the benefits paid to middle and upper-income seniors while ramping up those households’ capacity to save for retirement on their own?

If you’re thinking about a fiscally-responsible Social Security reform package that might be sold across the aisle, look at an Aussie-style reform in this way:

• Old-age poverty would be essentially ended. That’s what progressives want, and an Aussie-style reform would leave far fewer seniors in poverty than the current Social Security program does. Ending elderly poverty also would reduce the political temperature of the broader Social Security debate, focusing questions more where they belong: how much more do we wish to spend to increase benefits for seniors who already are among the richest on earth?

• The retirement plan coverage gap among private sector employees would be almost entirely addressed. Currently, around 72% of private sector workers are offered a retirement plan at work, according to the Bureau of Labor Statistics. An Australian-style retirement reform would make coverage universal. Australia requires that employers provide a plan, but a U.S. approach might build upon the supplemental auto-IRA plans that many states offer to employees who don’t have a workplace retirement plan.

• The retirement plan participation gap also would be addressed, given that every employee would enrolled in a plan. According to the BLS, about 53% of all private sector employees in 2024 participated in a retirement plan. I by no means think that all employees should be saving for retirement at all points in their working lives, but I’m far from a majority in that view. Universal participation would put many policymakers’ minds at ease regarding retirement income security.

• Retirement account contributions would come from employers, not employees. This is not a free lunch, given that those new funds must come from somewhere. But with the retirement plan coverage and participation gaps addressed, perhaps the 1.3% of GDP the CBO says the federal government spends annually on retirement tax preferences – which would be redundant in such a scenario – could be repurposed to ease the employer cost burden. For instance, by rolling back the tax preference, the federal government could cover around 3.7 percentage points of the 12% employer contribution that Australia mandates.

• An Aussie-style Social Security reform plan could be phased in over decades. For instance, the income or asset thresholds at which traditional Social Security benefits are means-tested could start high and be lowered slightly each year. Alternately, the rate at which benefits are reduced when incomes or assets exceed the threshold could start low and gradually increase. In either case, traditional Social Security benefits would be reduced only as new retirement savings were increased, as is happening in Australia. A commitment to reach sustainability over several decades would may financial markets confidence that the federal government will eventually balance its books.

• A targeted Social Security program leaves much more fiscal space for the things progressives actually want to do, whether it’s expanding healthcare coverage, climate change, housing or education. Realistically, you don’t get to enact biggest-in-history tax increases more than once, so you need to think where you want that money to go. Since it’s inexpensive to maintain Social Security benefits for low-earning retirees, at the margin Social Security tax increases are really about maintaining current-law benefit growth for middle-income and upper-income seniors, who are already doing fine financially. Progressives might rightly ask: is that more important than fighting climate change or Medicare for All or whatever other policies they favor?

All that is great. But getting the benefits of an Aussie-style Social Security reform demands that policymakers do a number of things they really don’t want to do.

First off, Australia’s Superannuation system depends upon two mandates: that employers offer a retirement plan and that they contribute to it. Congressional Republicans have been reluctant to support any requirement that employers offer retirement plans or that employees be automatically enrolled. That is one reason I suspect that the SECURE Act and SECURE 2.0 won’t do much to expand retirement plan participation. The traditional Republican approach is to offer tax incentives for offering retirement plans and for employees to participate in them. This is a very expensive and probably not very effective way to do business.

But while the GOP looks askance on employer mandates, it forgets is that taxes are mandatory, too. And if fiscal conservatives don’t identify some serious Social Security reforms, and soon, they are lining themselves up for the largest peacetime tax increase in history.

Second, Australia’s Age Pension is means-tested, something that Social Security traditionally has not been. (With the exception of the income taxation of benefits, which reduces net benefits by only about 4%.) One alternative might be along the lines of the “progressive price indexing” that President George W. Bush favored. That approach reduces benefits for high earners based upon their career-average earnings, not upon their income or assets when retired. So it’s not in fact a means test. That approach is potentially feasible, but to get the savings that Australia’s Age Pension would generate the benefit reductions would have to be substantially larger than what the Bush plan foresaw. But combined with an expansion of Supplemental Security Income to reduce old-age poverty, it may be possible.

All this said, the simple fact that the Trump administration is even looking at Australia’s retirement system is encouraging, because when you start looking at how other countries are addressing the challenges of population aging you realize the U.S. approach is out of step with that of other Anglo countries. While there’s no magic bullet to fix Social Security’s finances and ensure adequate retirement savings, countries like Australia, New Zealand and the United Kingdom show that affordable and successful approach are possible.