Sept. 11, 2019, 6:56 a.m. EDT

Australia’s safety net for retirees is generous and comprehensive — and complicated

The country’s Age Pension spreads the wealth around the population

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By Alessandra Malito, MarketWatch

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Australia places much of the responsibility for retirement savings on the employer.

With such a restrictive pension system, Australians need to ensure they’ll have enough money when they retire — one reason why the country’s superannuation program has become a necessity.

Superannuation accounts are similar to the U.S.’s 401(k) plans, but the Australian government mandates employers contribute to them. Each year, private-sector employers must put the equivalent of 9.5% of their employees’ salaries into these accounts, out of the employer’s own assets and not the wages of their workers. Employees can then voluntarily contribute their own earnings to the account.

The employer’s contribution will gradually increase to 12% by 2025.

Australians may get this benefit from employers because of the government’s rules, but they face severe restrictions when applying for the Age Pension, Australia’s version of Social Security. The Age Pension is means- and income-tested. The age requirement for beneficiaries is gradually increasing from 65 to 67 years old, and individuals must be a resident of the country for at least 10 years to be eligible for benefits (five of which must be consecutively). Single individuals can get a maximum basic rate of $844 every two weeks , and couples can receive no more than $1,272 in the same time frame. Single retirees who earn more than $2,026 every two weeks in retirement are cut off from the Age Pension (and $3,100 for couples).

Benefits are also limited based on how much residents have in assets, including non-principal homes, business ownership, overseas accounts, investments and, if you’re above the retirement age, superannuation funds. Payments for single retirees who are homeowners are reduced out if they have more than $263,250, or $473,750 for non-homeowners. Couples with combined assets have a limit of $394,500 in assets if they’re homeowners, and $605,000 if they’re non-homeowners, before benefits are reduced.

“It really is a safety net, and it is strictly enforced,” said Ashley Murphy, founder of Arete Wealth Strategists, a financial planning and investment management firm that works with American and Australian clients .

Superannuation funds are a hedge against the risks of entering retirement with little to no savings. The average man approaches retirement with $300,000 in his superannuation accounts, and the average woman has about $160,000, said Stephen Huppert, a consultant and adviser to Australian institutions in the retirement industry, including those that administer superannuation funds. While the system is generous, there is room for improvement, he said, including ways to help women’s superannuation contributions while on paid maternity leave and the growing population of gig economy workers. There’s also little education during the decumulation phase, when Australians are asked to choose to take a lump sum of their assets or use some or all of the balance to purchase a retirement income stream.

Still, having an employer-funded account to fall back on — especially if employees also contribute — bolsters financial security and a successful transition into retirement. Australia was the fourth-highest ranked country for global pension assets in total last year, behind the U.S., Japan and the U.K, according to Willis Towers Watson’s Global Pension Assets Study released in February . “That’s substantial when you consider it is one-fourteenth of the U.S. population,” Murphy said.

Read more:

China: How China’s one-child policy helped to endanger its retirees

Japan: Retiring in Japan: Seniors greatly outnumber younger workers — and that’s a big problem for everyone

Brazil: Brazil wants to make it harder to become a retiree

Sweden: Sweden partially privatized its Social Security — here’s how it has worked out

The United Kingdom: U.K. companies are required to enroll workers in retirement plans — and it’s helping them save more

The United States: Social Security is a lifeline for many older Americans, but how will it be funded in the future?

Alessandra Malito is a personal finance reporter based in New York. You can follow her on Twitter @malito_ali.

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