A new survey of international attitudes toward retirement, sponsored by the AARP, found that Australians and Canadians are the most optimistic about retirement, followed by Americans and Japanese, while Germans, the French and the Italians are among the least optimistic.
That might be because the Australian, Canadian, U.S. and Japanese retirement systems lean heavily on non-government retirement plans that are heavily invested in the capital markets, while Germany, France and Italy have systems dominated by government social security systems with only small private systems.
In the Australian case, it might also be because the workers have a significant amount of control over their own retirement welfare.
The Australian and Canadian systems both have a basic government-provided benefit supplemented by employer-provided plans. In both countries the government benefit is means tested, cutting out those who earn upper-middle and high incomes.
Because of the means testing, the government's social security burden is capped, and might decline in the future. This is particularly the case in Australia, where there is still debate over whether the government mandated all employers provide retirement coverage to all full-time employees for the purpose of reducing the long-term burden of social security.
In 1992, the Australian government passed legislation requiring every employer to contribute 3% of each employee's salary to a defined contribution plan, increasing this to a total of 9% of pay in subsequent years. Today, 95% of full-time employees in Australia participate in a retirement plan; before the legislation, only about 40% were covered by a plan.
The mandated defined contribution coverage means that during a 40-year working career, many Australians will accumulate a retirement income, or assets, that will reduce or eliminate any government pension. By some estimates, 30% of Australian workers could be cut out of the government's pension under current rules, but with minor changes that could rise to 70%.
It is perhaps no coincidence that the Australian economy has boomed almost since the mandatory private DC system was introduced, although no doubt other macroeconomic policy changes were major drivers of that growth.
The Australian funds are invested in stocks (domestic and international), bonds and real estate. In fact, the introduction of the system has turned Australians into a nation of investors from a nation of savers.
In Canada, because of the means testing of government benefits and modest benefit levels, many employees depend on employer-sponsored plans for their retirement income. The government retirement system provides about 48% of retirement income, with employer plans providing 30% and personal saving the remainder, with the employer-sponsored benefit increasing in importance.
In the U.S. and Japan, employees are beginning to gain more control over their retirement income through defined contribution systems, but they are not as far along as the Australians. And, in the U.S., the collapse of several major defined benefit plans, together with the debate about the future of Social Security, might have somewhat dampened retirement optimism.
Perhaps the lesson of the findings of the study is that people are most optimistic about their retirement when they feel they have significant control over the provision of their retirement income. When they must rely on the government almost entirely for those benefits, as in France, Germany and Italy, they are less optimistic — probably because they are largely at the mercy of decisions by government officials.