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Rethinking the Welfare State

The Political Economy of Pension Reform

Edited by Martin Rein and Winfried Schmähl

In this book a distinguished group of contributors discuss the changing political economy of pension reform. They focus on those countries which have launched a significant reframing of their pension system. Each chapter provides a detailed review of recent pension reforms and offers institutional evidence of the extent to which these reforms suggest a redirection of the welfare state towards a more public-private mix of policies. The countries were selected to represent the variety of new directions which mature industrial countries as well as countries in transition have taken.
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Chapter 3: Reforming Pensions: The Australian Experience

Peter Whiteford


Peter Whiteford INTRODUCTION The Australian social security system differs from that in most other countries.1 Using World Bank (1994) terminology, Australia can be described as having a three-pillar model. The first pillar is a flat rate, means-tested pension financed from general government revenue. The second pillar involves compulsory savings through an employment-based system known as the Superannuation Guarantee. The third pillar encourages individuals to supplement the first two pillars, through either voluntary superannuation assisted by tax concessions or other private saving, particularly housing. Public spending on age pensions is low compared to that of most other OECD countries. Nevertheless, coverage is comprehensive, and the system appears highly redistributive to groups often poorly served by social insurance systems, such as women, those with long-term disabilities, lowwage earners and others with marginal or incomplete attachment to the labour force. Indeed, the Australian pension system has been described as ‘radically redistributive’ (Aaron, 1992). Australia’s retirement income arrangements are also of interest for the example of the second-tier, compulsory, funded pension scheme. In a relatively short period, coverage has expanded to cover the great majority of the employed population, although this system will take many years to mature. This chapter discusses the Australian system of provision for retirement incomes, and some of the lessons that might be learned from Australian experience operating a targeted income support system and developing a compulsory private second pillar. The second and third sections of the chapter provide details of the public income support system, and the private...

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