Australia's retirement income revolution: a Finnish system “down‐under”

Abstract

Most advanced industrial societies are confronting serious economic recession, and governments are seeking ways to stimulate economic growth and reduce government expenditure. For many countries these problems are compounded by aging populations and demographic changes. There are fewer people in the workforce, and more people in older age groups live longer and have increased expectations for retirement lifestyles. The result has been that many governments are radically transforming their systems of retirement income provision, often causing political, economic and social upheaval and widespread public anxiety. Australia is one country in which there have been huge changes in the retirement income system in the past 5 years. The system has been substantially privatized, and future retirement income will come from statutorily enforced earnings‐related individual savings accumulated in decentralized private funds. Australia's new retirement income regime bears extraordinary similarities to the Finnish system of employment‐related pensions, yet there was no reference to the Finnish system in the evolution of the new Australian system. There are lessons for Australia and for other countries in the long and successful operation of the Finnish pension system. This article first examines Australia's retirement income system, recent government policy changes and likely implications of these retirement policy changes for the future of Australia's traditional welfare state. Cross‐national comparisons of the retirement income regimes in Finland and Australia, identifying international best practice in each country, comprise the second half of the article. Such comparisons will be of interest to policy‐makers seeking new policy directions.