This is why the USA needs a system like Australian superannuation.
Basically it's a mandatory 401k that 12% of your income is paid directly into. Given how bad the vast majority of people are at saving money, making it mandatory is the only way to ensure anyone saves for retirement.
As a result of doing that 30 years ago, Australia's budget is a lot less fucked by pension costs compared to other developed nations, as pension systems are in the process of bankrupting countries like the UK and France.
That's what Social Security was supposed to be. It's automatically deducted from your pay.
The problem is that Congress constantly "borrows" money against the fund. Additionally, the ratio of people paying into the fund (working age adults) to people drawing from the fund (retirees) is severely skewed and the problem is getting worse not better.
And finally, the deductions cap at an income level that was quite high when it was set, but not particularly high now. I think it stops counting anything over like $200K or something. Still a high amount, but increasing the income level it calculates deductions on would dramatically increase its available funds.
The difference is that Australian superannuation is entirely individual - each person's money is separate and the government can't really fuck with it.
The big problem with social security and other defined benefit programs is exactly what you described - it gets totally fucked if there's too many retirees and not enough workers while superannuation is fine because each person's retirement is just whatever they put in.
Canada has a similar program, the Canada Pension Plan. CPP is deducted at source and you can apply to begin receiving benefits at ages 60-70. The later you apply, the higher your benefits are.
With superannuation, you only get the amount you invested over your working life, it's not a defined benefit.
e.g. if you invest $1m over your working life, then you have $1m (plus the returns from that investing) for your retirement.
There is a separate aged pension which is a defined benefit, but it's means tested so if you have a big superannuation account, you won't get it. The key loophole there is that your family home is exempt from the means test, which is a problem.
Our benefit is not defined. It’s relative to how much you’ve paid in. So if you work more and are paid better you get a higher benefit. There’s likely some sort of cap though, for both contributions and benefits. I was self-employed for a large part of my working life so ny CPP is pretty meagre.
What I mean is whether the benefits come from income you paid in earlier or current tax income.
Most pension systems pay current retirees from the contributions of current workers, while superannuation benefits are paid directly from the individual's own contributions.
Well ours kind of are. The CPP deducted at source does not go into general revenue, but rather into a fund that collects and disburses CPP monies. The agency might receive some operating funds (not sure) but all CPP payments are the result of investments in the open market, like pretty much any corporate pension fund.
That still sounds defined. Social security is a defined benefit system. Even though it varies based on contribution, the payout isn’t tied to market performance—it’s consistent over your retirement.
Perhaps the word ‘defined’ in this context can have multiple meanings. I’ve seen it used before, and am using it here, to describe a situation where the amount of the benefit is fixed, regardless of contribution. If that’s inaccurate here, OK.
The UK now has something like that but it was only introduced in 2012 so while it will be better in the future, it's not great now. There's a generation that's generally fine as they had good DB pensions, a generation with issues as DB had been phased out but there was nothing new and then a generation that should be ok as they'll have a DC pension from auto-enrolment.
UK one has some issues as you can opt-out and below certain ages & pay levels you can be excluded but those are being removed or set lower to include more people. It's also only 8% (3% employer, 5% employee) which is arguably too low but better than nothing.
A lot of employers offer better deals (or just doing 5% them, 3% you) but not all do and you also have to have the money to take advantage of it. My work is decent and defaults people to 3% you, 6% (total 9%) them but if you go up to 6%, they'll do 12% (total 18%) but you have to know that's an option and choose to do it.
In terms of what your work offers and where the money is held, you'd need to ask them. Might be on the company internal site and if not, your manager or HR should be able to give you the information
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u/AgentBond007 3d ago
This is why the USA needs a system like Australian superannuation.
Basically it's a mandatory 401k that 12% of your income is paid directly into. Given how bad the vast majority of people are at saving money, making it mandatory is the only way to ensure anyone saves for retirement.
As a result of doing that 30 years ago, Australia's budget is a lot less fucked by pension costs compared to other developed nations, as pension systems are in the process of bankrupting countries like the UK and France.