Australia's retirement income revolution: a Finnish system “down‐under”

Abstract

Most advanced industrial societies are confronting serious economic recession, and governments are seeking ways to stimulate economic growth and reduce government expenditure. For many countries these problems are compounded by aging populations and demographic changes. There are fewer people in the workforce, and more people in older age groups live longer and have increased expectations for retirement lifestyles. The result has been that many governments are radically transforming their systems of retirement income provision, often causing political, economic and social upheaval and widespread public anxiety. Australia is one country in which there have been huge changes in the retirement income system in the past 5 years. The system has been substantially privatized, and future retirement income will come from statutorily enforced earnings‐related individual savings accumulated in decentralized private funds. Australia's new retirement income regime bears extraordinary similarities to the Finnish system of employment‐related pensions, yet there was no reference to the Finnish system in the evolution of the new Australian system. There are lessons for Australia and for other countries in the long and successful operation of the Finnish pension system. This article first examines Australia's retirement income system, recent government policy changes and likely implications of these retirement policy changes for the future of Australia's traditional welfare state. Cross‐national comparisons of the retirement income regimes in Finland and Australia, identifying international best practice in each country, comprise the second half of the article. Such comparisons will be of interest to policy‐makers seeking new policy directions.

The Revolution that Faltered: Two Decades of Reform of Australia's Retirement Income System

“…How ever, within the Aus tralian con text they mostly rep re sent a grand de par ture from the ob jec tivesto the ex tent that they were dis cern ible -of the re tire ment in come sys tem be fore the early 1980s. In deed, they are so pro foundly dif fer ent that they and the changes they have shaped have been de scribed as "rev o lu tion ary" in Thomas Kuhn's (1970) sense of this term, in volv ing a para dig matic shift in which the roles of the pil lars of Aus tra lia's re tire ment in come sys tem have been turned on their heads (Borowski, 1987;Olsberg, 1994Olsberg, , 1995Olsberg, and 1997.…”

“…Fur ther, many em ploy ers ei ther re sisted un ion ef forts to ini ti ate ne go ti a tions on su per an nu a tion or failed to com ply with award su per an nu a tion where the con sent agree ments had been ap proved by the Ar bi tra tion Com mis sion. Great dif fi culty was ex pe ri enced in po licing the pay ment of con tri bu tions, par tic u larly among small em ploy ers (Olsberg, 1995). Con se quently, the gov ern ment aban doned the col lec tive bar gain ing strat egy for ex pand ing su per an nu a tion cov er age and, in stead, man dated cov er age.…”

The Privatization of Retirement Income? Variation and Trends in the Income Packages of Old Age Pensioners

“…Occupational pensions appeared to take up a relatively modest share in Norway and Australia -11 percent and 8 percent respectively. In the case of Australia, one should note that most private sector occupational pension plans pay out lump sums rather than annuities (Olsberg, 1995;Bateman and Piggot, 1997), and lumpsum payments are not recorded in the LIS data. It is worth mentioning that the preference for schemes with lump-sum payments in Australia should probably be seen in light of the fact that public pension benefits are income tested.…”