Written

For

The

Australian

-

Could

we

have

a

better

system

for

self-funded

retirees

and

is

America

the

best

inspiration?

Should the government force you to save for retirement, or should you be trusted to do it yourself? That's the philosophical question sitting underneath Angus Taylor's recent musings about bringing a US-style 401(k) system to Australia.

Taylor floated the idea at a Sydney investment conference a few weeks back, suggesting Australia should align more closely with global retirement systems. His office later clarified the comments were really about using super for housing, but the genie was out of the bottle. The ACTU wasted no time attacking the idea, arguing it would wreck our super system.

So let's look at what a 401(k) actually is. It's employer-sponsored, similar to our retail and industry funds. IRAs offer more investment choice, and self-directed IRAs are the American cousin of our SMSFs. Sounds familiar — until you dig into the differences.

The biggest one? Contributions are voluntary in the US. There's no equivalent of our 11.5 per cent super guarantee (heading to 12 per cent next July). Instead, US employers typically match a portion of what employees choose to contribute. Americans can also borrow from their retirement savings, or drain the account early by wearing a 10 per cent penalty. Try doing that with your super here — you'll be told to come back at 60.

Tax treatment differs too. Americans get the deduction going in but pay tax on the way out. We can run a tax-free pension up to $1.9m in retirement.

My take? It comes down to whether you believe government should be paternalistic about retirement. The US treats adults as adults. We legislate super the same way we legislate seatbelts — for your own good.

Our system isn't perfect, particularly for self-employed people who can dodge contributions. But for the average worker, compulsory super genuinely delivers a retirement nest egg. I wouldn't be trading it for the American model any time soon.