Australia’s Mandatory Investment System
What happens when you force a whole country to invest?
Welcome to the Alts Sunday Edition 👋
Err, Monday edition. I’m sending a day later than usual after a whirlwind week in Hong Kong and Malaysia.
A few days ago, Apollo’s chief economist Torsten Slok published a chart that stopped me cold: 46% of working-age Americans have zero retirement savings.
Not “underfunded,” zero. As in, a retirement account does not exist.
This topic is especially meaningful to me, because here in Australia, we have a terrific retirement system called superannuation. And like many things down under, surprisingly few outsiders seem to know about it.
Australia is easily one of the wealthiest countries in the world. It has the second-highest median wealth after Luxembourg (which let’s be honest, doesn’t really count), and has been a remarkably stable & prosperous land for decades.
But in early 1983, Australia was in rough shape. Inflation was running in double digits, unemployment was climbing toward 10%, and the country had just endured years of industrial conflict.
Superannuation (which in typical Aussie fashion is shortened to ‘super‘) is a cornerstone reason why Australians are so wealthy today.
But it was not the product of a free-market revolution. Instead, it required an unlikely coalition, got accepted by the business community as the price of industrial peace, and is now finally catching the attention of the Americans who need it most.
Today, I’ll explain what superannuation is, how it works, and explore whether a system like this could ever work in the US.
This is an issue I’ve wanted to write for a while.
Let’s go 👇
How we got here: It all started with the unions
Australia’s superannuation system didn’t emerge from any policy paper or think-tank. It was born out of a wage dispute.
It all started with Bob Hawke — the country boy turned Rhodes Scholar who became Australia’s Prime Minister in 1983.
When his Labor Party swept into power, it did so on the back of an unusual pre-election deal. The unions wanted a 3% pay increase, but Hawke was uniquely positioned to negotiate something even better.
See, before entering Parliament, Hawke spent over a decade running the Australian Council of Trade Unions (ACTU). This wasn’t a politician who understood unions; he was the union movement. And he understood they would accept wage restraint only if workers received something durable in return.
A retirement savings guarantee was that something.
Hawke convinced the union to hold back their demands. In exchange, the government committed to delivering a “social wage” for all employees — a robust benefits package that included universal healthcare, improved pensions, some tax cuts, and eventually, superannuation.
The idea was simple: union workers would get the pay raise they wanted. But instead of being able to spend funds right away, the money would be automatically invested on workers’ behalf, locked away until retirement.
The starting rate was 3%. This increased over the decades, hitting 9% in 2002, and eventually climbing to 12%, where it currently stands today.
A decade later, Prime Minister Paul Keating enshrined the system into law.
The Superannuation Guarantee eventually made employer contributions to retirement compulsory across the entire workforce.
How Superannuation works
The first thing you need to understand about superannuation is that it is not optional.
From the day you start a job in Australia, your employer is legally required to contribute 12% of your earnings into a superannuation account in your name.
Not 12% deducted from your wages, 12% on top of your wages. This distinction matters enormously. Super isn’t a tax on workers. It’s an additional employer obligation, separate from your take-home pay.
This mandatory architecture is what makes the system fundamentally different from most retirement frameworks elsewhere in the world — and we’ll come back to that when we compare it to the US.
For now, the mechanics.
Replacing the old pension system
Before super, Australia had a single safety net for retirement called the Age Pension (which still exists today.) It’s designed for Australians over 67 who meet income and assets tests — essentially a public welfare floor.
The problem, as with most “pay-as-you-go” pension systems (like Social Security in the US), is that it falls heavily on the government’s budget, and delivers very modest income in retirement.
Superannuation was designed to replace this system over time. As workers spend more of their careers under the new compulsory system, the expectation is that more Aussies will arrive at retirement self-funded — or at least mainly self-funded.
It’s working. Today, Australia is the only OECD country projected to experience a decrease in pension expenditure as a percentage of GDP, forecast to fall from 2.5% in 2025 to 2.0% in 2060.
Portability
The second thing you need to know is that super is fully portable. When you change jobs, your super follows you.
The result is a system that is, by design, largely invisible to most participants. Money flows in automatically, gets invested in a diversified portfolio, compounds over decades, and gets withdrawn at retirement.
Meanwhile in the US, changing jobs means you likely have to either create multiple 401k, or change the funds you’ve invested in.
You’re effectively selling all your existing investments and buying totally new ones. This takes weeks, and markets can move like crazy when you’re between funds.
(Oh, and your retirement money can get literally lost in the mail. It’s comical.)
Age
As expected, you generally cannot touch your super until you reach your preservation age (currently 60 for most people).
There are some exceptions for severe financial hardship, but the system is specifically designed to prevent people from raiding their retirement savings early — a problem that plagues voluntary systems.
During Covid, an exception was made to allow Aussies to withdraw up to $20,000 from their super, tax-free. Around 163,000 accounts were fully depleted — the pandemic sadly wiped out what little they had built up.
And interestingly, the Covid exception opened a political door that hasn’t closed. Today, with home ownership increasingly out of reach for so many, there is increasing pressure to let Aussies withdraw up to $50,000 for a deposit on a home.
The super industry argues this would inflate house prices further, while draining retirement savings.
They’re not wrong, but the libertarian side of me says so what? Australian real estate has been unstoppable for decades — averaging 6.4% annual growth over 30 years. It has even outperformed the ASX in 6 of the past 10 years! Who’s to say workers shouldn’t be allowed to swap one type of retirement asset for another?
Where does your money go?
As you might expect, superannuation fund management is an enormous industry. With each paycheck, your employer makes a contribution that flows into a fund which invests it on your behalf.
There are 112 fund providers in Australia, and they’re generally well diversified, with some default bias towards Australian firms.
The top asset allocations across all super funds are:
32% International shares
23% Australian shares
19% Fixed income
The positive externalities are significant. Super provides a permanent, patient source of funding for long-term assets that short-term markets routinely underprice. Since so much of the capital is invested directly in Australian equities, airports, toll roads, and renewable energy, the system has become a de-facto national investment vehicle.
Unlike social security, this is not a government bond account. Workers aren’t just accumulating savings; they’re participating in global equity markets, often without ever having to think about it.
Workers have control
Of course, if you love investing and want to think about it, you certainly can. There are plenty of different fund types.=
Each of these structures have allocation controls similar to what you’d find in a 401k plan. You can lean conservative/moderate/aggressive, or get fairly granular (depending on the fund).
And for the serious DIY investors, there are Self-Managed Super Funds (SMSFs), which allow individuals full control over their own fund management. Similar to the SDIRA in the US, this structure is becoming very popular — an astounding 24% of super assets are now self-managed!*
Side topic: Does this hurt small businesses?
Super essentially shifts the burden of retirement investing onto companies. But doesn’t that hurt entrepreneurship?
You’d think so (at least I would!) But the data may surprise you.
Read the full section in the community.
Taxes
Super contributions are taxed at a flat rate of 15%, lower than the marginal income tax rate for most working Australians. Investment earnings inside the fund are also taxed at 15% during the accumulation phase.
In retirement, for most members, withdrawals are tax-free entirely. This is most similar to a Roth IRA in the US — where contributions are made with after-tax money and qualified withdrawals in retirement are tax-free.
This is an incentive to voluntarily contribute more. Employees can make a salary sacrifice, which is a pre-tax contribution of their own, up to a combined cap of $30,000 per year.
But that concessional treatment has limits — and they just got stricter. Starting this July, Australians with super balances above $3 million (roughly the top 0.5% of account holders) will be taxed at 30% instead of 15%, and those above $10 million (top 0.04%, or ~87,000 Australians) will be taxed at 40%.
The numbers
Size
It’s been 33 years since compulsory superannuation became law, and the scale of what has been built is genuinely staggering.
Before the modern system was established, only 30% of Australians had retirement savings. Today, compulsory super covers ~90% of the employed workforce.
There are 24.7 million super accounts. That’s nearly one account per person, including children — a reflection of both the near-universal coverage of the system, and the ongoing consolidation push to reduce duplicate accounts. (They exist here too.)
Total assets under management reached $4.5 trillion in 2025. That makes Australia the 4th largest holder of pension fund assets in the world, projected to be the 2nd largest by 2031!
For a country of just 27 million people, that is a remarkable achievement.
American PE firms are starting to take notice. BlackRock already works with almost all of the top 25 Australian superannuation entities. In 2021, KKR acquired a 55% stake in Colonial First State, one of Australia’s largest retail super providers, for $1.7 billion. In 2025, CC Capital acquired Insignia Financial, which manages A$121 billion in superannuation for A$3.3 billion.
And for their part, Australian super funds have been deploying capital back into the US — buying infrastructure, data centers, and commercial real estate. The capital flows are increasingly bidirectional
Returns
Returns have been solid. As of Sep 2025, the five-year average annualized rate of return was 8.3%. Over 30 years, super funds have delivered average annual returns of around 7.5%.
But while the aggregate numbers are impressive, the individual picture is more mixed.
Balances
In 2025, the average super account balance reached a record $172,834
Males average $192,119
Females average $154,641
Those approaching retirement (aged 65-69) average $420,934
These averages, however, mask a distribution that is skewed significantly to the right by high balances at the top. The median balances tell a more grounded story.
For those aged 30-34, the median balance is just $38,525
50-54 = $147,857
70-74 = $215,009
A separate but related issue is coverage at the lower end of the income spectrum. Only 54% of Australian adults with household incomes below $50,000 per year have a super account.
The gap is due to casual workers, the self-employed, and gig economy workers, who are classified as independent contractors and can get left behind.
Comparing to the US system
Super vs Social Security
Larry Fink is the chairman and CEO of BlackRock, the world’s largest asset manager.
In his 2026 annual letter to investors, Fink specifically pointed to Australia as evidence that a better retirement system is absolutely possible. For an American CEO managing $14 trillion in assets, that’s a pretty big deal.
If you’re reading this, you probably have a 401k, maybe an IRA, possibly some brokerage accounts, likely some real estate, and you’re (hopefully) starting to diversify into all the wonderful alternatives we bring you! You think in terms of asset allocation and compound returns.
But that’s selection bias. Many Americans don’t have any of that! They rely on Social Security, and Social Security alone, as their retirement plan. Over 40% of Americans at retirement age depend on SS for the majority of their income.
The big thing with Social Security is that you have no control over what it invests in. It’s essentially a big, slow, low-return fund designed to preserve capital, rather than grow it, by investing almost entirely in US Treasuries.
In 2025, Social Security trust funds earned an effective annual interest rate of just 2.6%. The US average annual inflation rate for 2025 was also 2.6%. So real terms, Social Security’s trust funds earned essentially zero, completely eroded by inflation.
The returns are so bad because the structure is so simple. Social Security is not a fund, it’s a pay-as-you-go system. There is no investment portfolio compounding on your behalf. It’s simply funded through payroll taxes, with employers and employees each contributing 6.2% of wages. Money collected today directly pays the benefits today’s retirees.
American workers are effectively lending money to the government, and getting extremely modest benefits when they retire. That’s it. The structure delivers almost no wealth accumulation.
Since it relies on new workers paying into the system, the dynamics aren’t much different from a Ponzi scheme. Which would actually be fine if Americans were having more babies and/or immigration was increasing. Of course, both of those are going in the opposite direction. So, Social Security’s trust fund devoted to retirement benefits may run out as soon as 2032.
Australia doesn’t have this problem. Super funds are funded. The assets are there. The government’s Age Pension liability is actually shrinking as a share of GDP. The architecture works in the opposite direction from Social Security — the longer it runs, the less pressure it puts on the public purse.
Super vs 401ks
The 401k lets American workers nominally access market returns. But even this system is employer-dependent (employers aren’t required to contribute), voluntary (even if there is a plan, many workers simply never enrol), and a much smaller percentage of each paycheck goes into retirement. (A typical employer matches 3-6% of what the employee gives, vs Australia’s mandatory 12% which again all comes from the employer.)
The contrast with super is almost point-for-point:
Side topic: The problem with 401ks investing in alternative assets
Running alongside the Social Security debate is a separate but related push: opening 401k accounts to private markets.
The vast majority of retirement savers access capital markets through a 401k and don’t have access to private markets. Wall Street has lobbied hard to close this gap, and President Trump signed an executive order expanding access to alternative assets in 401k plans.
The resulting safe harbor rule is designed to protect the people responsible for managing a company’s 401k menu (typically the HR or benefits team) from getting sued if they choose to include alternative assets.
Adding alternatives to a retirement account is obviously great in theory. Heck, Australian super funds have been investing in infrastructure, private equity, and private/unlisted assets for decades. (It’s a meaningful part of why their long-run returns have held up.)
But those allocation decisions are made by professional fund managers with fiduciary obligations to millions of members — people whose entire career is doing due diligence on this stuff — not some random Fred and Nancy in HR. The US proposal essentially asks HR departments to make the same calls.
Are you fucking kidding me?
Yes, the rule reduces litigation risk for employers, but it doesn’t mean HR departments are qualified to evaluate private credit liquidity terms or layered fee structures. Some private credit funds are already facing surging investor redemption requests.
If those funds go bust, HR departments can’t get sued, and workers who had little or no say in the matter will get screwed.
Closing thoughts: Could the US actually import super?
The question for the US isn’t whether Australia’s model is worth borrowing. It clearly is. The experiment worked.
The question is, would this actually be possible in the US, given the horrific state of US politics today?
A genuine super-style system would mean mandatory employer contributions on top of existing wages — not a tax on workers, but a new obligation on businesses. This would require a feat of bipartisan political courage that Washington has demonstrably abandoned.
It would mean accepting a long transition period as the new funded system builds up, while simultaneously maintaining Social Security payments to all current retirees.
Australia pulled this off because of a specific historical moment: a powerful union-negotiated wage deal (at the time, nearly 50% of Aussies were unionized!) a Labor government with the courage to push it, and a business community that ultimately accepted the trade-off.
That kind of structural leverage no longer exists (in either country, for that matter.) But it’s especially absent in the US, where tribalism and political polarization is the new normal, and bipartisan cooperation on anything structural is effectively over.
The idea of committing to a 30+ year retirement reform project, across multiple Congresses, elections, and Presidents, requires a level of institutional trust and shared purpose that is frankly unthinkable these days.
Which is a real shame, because American workers are getting a raw deal under the current system. Social Security is a broke joke, and the 401k feels like a stitched-together afterthought, which somehow became the country’s default retirement protocol.
Voluntary systems require people to consistently prioritize their future self over their current self. Decades of behavioral economics research confirms that most people aren’t great at doing this. Superannuation removes that choice — and the data suggests the outcome is better for it. Compulsory systems are just superior.
The funny thing is, getting voters on board shouldn’t be that hard! A third of Americans are worried about retirement. Workers would love it, because the burden falls on corporations which have never been more profitable.)And if structured as a complement to Social Security, it wouldn’t even touch the existing system in the short term.
One could envision US corporations lobbying against this. But (and I confess I have NOT done the math) wouldn’t this idea juice the hell out of equity markets — including the portfolios of the 1-percenters who really run America?
Yes, corporate profits might go down, but you’d be creating somewhere between 100 and 160 million new investment accounts overnight — one for every American worker currently without a retirement plan.
All with fresh new funds automatically pouring in each week, and a requirement to invest them.
Who wouldn’t want that?!
In the meantime, I think it’s clear that super is one of Australia’s best ideas
Super has done something remarkable: it turned a country of 27 million lucky people into the 4th largest pension pool on earth.
There’s a nagging thought that keeps coming back to me: if Australia can pull off aggregate funding this large for individuals, could it do the same at a national level?
After all, Norway has. Their sovereign wealth fund is worth nearly $2 trillion. Ours, the Future Fund, is a rounding error by comparison. Same resource wealth. Different choices. Different outcomes.
But that’s a story for another issue.
That’s it for today!
See you next time, Stefan
Disclosures
This issue was written and edited by Stefan von Imhof
The web version of this issue is sponsored by Byron Blackbird. It contains no affiliate links.
If you acquire the Byron Blackbird resort, Stefan, Wyatt, and their families get to stay there free for a week.
The SMSF statistic is the sleeper detail in this piece: 24% of super assets are now self-managed, and it keeps climbing. Mandatory architecture got everyone to the table; conviction got the most engaged investors to take the controls.
What Australia built is not just a retirement system; it is a generational proof that when capital becomes universal, the desire to understand it follows. The real US policy question is not whether workers could build wealth this way, but whether the country trusts them enough to try.
Nice post! Lots of good info in there.
You note that returns for the last give years in supers have been good (8.2% last 5 years per the super website).
But how do we know that is good?
One thing I've been trying to find is Alts returns from respective Supers. I've seen references like "look, we invest in PE, and our returns are good" but nothing that SHOWs that they've been satisfactory (i.e. returned a premium over public markets, etc.). Are you aware of any evidence on Alts returns? Also do you know what Super investors pay to invest in Alts? There may be some benefit there (though it would be reflected in returns if we could see them).
Lobbyists in the US conflate the stronger Aussie retirement system, and the fact that supers invest in Alts, and then turn around and say "we should invest in Alts in 401(k)s.".....when the real impact comes from saving more $$$.
Also: on auto-enrollment, i think that the figure is now more than half of US employers auto-enroll.
Appreciate it!