Pioneered in the 1980s and 1990s by free-market-friendly Labor governments, “super,” as Australians call it, shifts much of the burden of funding pensions from the state to the private sector.

A core feature of Australian superannuation is a legal requirement that employers contribute 12% of an eligible employee’s annual earnings to privately managed super funds. Employees can also make direct payments into their superannuation accounts up to a certain amount. These arrangements are accompanied by a means-tested government age pension to help retirees whose superannuation isn’t sufficient to make ends meet.

One positive lesson of “super” is that pension systems in which the private sector plays an ever-growing role can help address the threat of insolvency confronting U.S. Social Security.

In Australia, about 35% of retired men and 23% of retired women rely on superannuation benefits as their primary retirement resource. By 2050, half of all Australian retirees will be self-funded. This helps explain why Australian government pension expenditures are projected to decline from 2.6% of gross domestic product today to 2.1% by 2060. By contrast, average government spending on pensions in the OECD nations is predicted to rise from 9% to 10.4% of GDP.

Other features of the Australian system, however, should give Social Security reformers pause.

First, in the name of protecting future beneficiaries, Australia’s super funds are subject to heavy regulation with high levels of administrative, auditing and governance compliance. Less wary of government than the average American, many Australians find extensive regulatory oversight of those managing a large portion of their future retirement income to be reassuring.

This translates into significant regulatory costs, most of which are passed on to those invested in super funds in the form of high fees. The effect is to reduce the size of future retirement payments.

Australia’s Productivity Commission forecast in 2018 that higher-than-average fees would cost the typical employee who retired at 67 about 12% of his superannuation. A 2024 Vanguard analysis underscored that while most Australians saw superannuation as crucial to their retirement, they were unaware of how much super funds were charging.

Another difficulty facing the Australian system concerns accountability: specifically, the limited ability of super fund members to hold managers responsible for mediocre results.

Shareholders in U.S. and Australian publicly traded companies can challenge poorly performing management through shareholder meetings and via activist investors who increase shareholder value by ousting directors and executives. Few opportunities for such bottom-up accountability exist in the Australian superannuation system. That can breed complacency among fund directors and CEOs.

In Australia the accountability problem is exacerbated by unions’ sway over a particular type of super fund. Known as industry super funds, these were originally set up by employers and unions to steward the savings of workers in the 1970s and 1980s. In 2025, ISFs controlled more than 40% of Australian superannuation assets.

Under Australian law, employers and unions appoint directors to ISF trustee boards under what is called the equal representation model. Union leaders say this ensures that workers have some indirect influence over decisions made by ISF boards and managers.

That claim is difficult to square with trends in union membership. The proportion of Australian employees who belong to unions fell from 51% in 1976 to 13.1% in 2024. Unions long ago lost the authority to serve as legitimate proxies for Australian workers.

Union officials, however, remain hard-wired into the governance structures of ISFs. That creates internal pressures for these funds to invest in industries with high union membership. It also helps explain why so many former Labor Party politicians have been appointed to senior positions in ISFs. The number of former Labor ministers serving in such capacities has been widely noted, as has the Labor government’s resistance to diluting employee representative requirements.

I have little doubt that union-friendly American legislators, among them some Republicans, would try to replicate similar arrangements in an Australian-style reform of U.S. pensions. The result would be the same as it is in Australia: the proliferation of opportunities for union officials and ex-politicians to use their oversight positions to promote political agendas at the expense of retirees.

Given the looming crisis confronting Social Security, U.S. policymakers must consider how other countries have addressed similar issues. We can learn as much from the Australian model’s deficiencies as its successes. That system doesn’t work as well as Mr. Trump supposes, and ignoring its weaknesses would be a serious error.

Mr. Gregg is president of the American Institute for Economic Research.