Compulsory Superannuation and Labour Market Responses

Compulsory contributions to superannuation have significant second round effects on labour market outcomes. The effects of employer, employee and government contributions are compared and contrasted for markets with different degrees of wage flexibility. With a flexible wage, the market wage adjusts to offset most of the initial effects of the superannuation levies. However, compulsion means that many employees perceive the present value of the future retirement income to be less than the levy. The levies as a form of tax on labour lead to lower overall remuneration for employees and lower employment     

Retirement planning in the light of changing demographics

With increasing longevity and decreasing fertility rates, governments and policy makers are increasingly engaged in the question of long term retirement planning. In many cases this has included emphasising the need for individuals to take more responsibility for their own retirement planning through tax incentives, compulsion and changes to the age at which state retirement benefits become available. In the case of Australia, as is considered here, long term retirement planning has been focused around the development of a compulsory defined contribution (DC) superannuation system. Here we investigate the interaction between population ageing and the sustainability of the superannuation system by modelling a general superannuation scheme to compare the adequacy of retirement funds under a number of alternative scenarios. The model incorporates stochastic longevity forecasts and provides insight into the sufficiency of compulsory retirement saving both now and future. We find that the current pension scheme is more robust to longevity improvements for mid-class individuals however significant gaps arise for low-income individuals as longevity improves. Without addressing these issues, government expenditure is expected to increase substantially.     

The ATO Longitudinal Information Files (ALife): A New Resource for Retirement Policy Research

The Australian Taxation Office release of annual longitudinally linked individual tax and superannuation records, known as the ATO Longitudinal Information Files (ALife), opens up opportunities for new research. In this study, we provide an overview of ALife, focusing on its use for retirement income research. To this end, we provide the first longitudinal estimates of superannuation outcomes for 1-year birth cohorts. Results show marked increase in disparity of super balances in the lead-up to retirement as those in the top quartile ramp-up their contributions, possibly to take advantage of the favourable tax treatment of superannuation income in retirement years.     

THE LABOUR SUPPLY AND SAVINGS EFFECTS OF SUPERANNUATION TAX CHANGES*

This paper investigates the effects on labour supply, consumption and savings of a change in the superannuation tax structure, involving the taxation of contributions to a fund, pre‐retirement earnings of the fund, and the benefits received from the fund during retirement. The effects on lifetime plans of tax changes are investigated using a simple three‐period model in which the final period is retirement. The effects of unanticipated changes, requiring revisions to plans, are examined. Although the partial effects of particular tax changes are unambiguous, the effects of allowing for a government budget constraint mean that it is difficult to predict a priori how labour supply is likely to be affected. However, private savings unambiguously fall.     

浅析新形势下澳大利亚养老基金改革

澳大利亚三大支柱养老保障模式拥有多层次的养老保障基金保证其制度的顺利运行.但是,人口老龄化和全球金融危机为其将来的顺利发展提出了严峻的挑战.为此,澳大利亚政府一方面推出一系列措施对超级年金进行改革,另一方面建立未来基金,专门应对预期可能出现的养老保障资金不足的风险.这些措施值得各国借鉴和学习.     

The Case for Gender-Sensitive Superannuation Plan Design

A key feature of superannuation plan design is the assumption that members have long and continuous periods of employment over which contributions are made. This heroic design feature has led to debate on the adequacy of superannuation plans for those with interrupted employment, particularly the adverse impacts this has on the retirement income prospects of women. This paper employs non-parametric stochastic simulation to investigate two possible solutions to gender inequality in superannuation, higher contribution rates and more aggressive asset allocation. Our results suggest that while both these strategies in isolation are effective in reducing the current gender disparity in superannuation outcomes, they demand significant changes to current arrangements when employed individually to address the problem. A combined approach is found to be more powerful in ensuring a more equitable superannuation outcome for women, as it nullifies the relative disadvantage of interrupted employment with only modest changes to contribution rates and asset allocation.     

Australian Government Policy on Retirement Incomes*

Australia has evolved an unusual dual system of retirement incomes support. There is a means-tested flat rate age pension and a system of occupational superannuation receiving considerable tax concessions. The current system gives rise to four major problems. These are enumerated and possible options for reform discussed.     

澳大利亚超级年金20年改革及应对危机的经验教训

在介绍澳大利亚退休收入保障制度以及超级年金目标的基础上,文章分析了影响超级年金制度实现目标的资产管理、投资方式和资产配置的情况,比较了1997年、2001年和2008年逐次加深的三次危机对超级年金的不同影响,并对超级年金应对危机的反应能力进行了分析,归纳了三个可能的制度性原因,总结了澳大利亚超级年金应对危机冲击的经验教训。     

Income Provision in Old Age

Few areas of public policy impinge more directly on individual lifetime welfare than those directed at retirement income. While policy initiatives implemented since the start of the 1970s fall short of major reform, there have nevertheless been substantial changes in the real value of pensions, the coverage of pensions, and the tax treatment of various forms of retirement income. The objective of this article is to catalogue these changes in policy, and to identify the combination of political philosophy and socio-economic pressures underlying them. It also analyses some of the economic consequences of these policies and examines the question of national superannuation. The article concludes that, for the present at least, any reforms in the area of retirement income provision seem likely to be limited to the refinement of the status quo.     

Planning Retirement Income in Australia: Routes through the Maze

Individual retirees face a daunting task when they consider how best to invest their accumulated superannuation account and non-superannuation savings. This article highlights the fact that there is rarely an obvious decision in this choice and that the optimal decision depends on a number of factors. These factors include the valuation criterion adopted, the level of benefits, the individual's income level, the means-tests, the tax rates on income and superannuation benefits and the person's life expectancy. The optimal behaviour at retirement is significantly affected by the individual characteristics of relative lifetime earnings and post-retirement rates of mortality.     

Pensions,Ageing and Retirement in Australia: Long‐Term Projections and Policies

Australia's retirement income provision system, comprising the ‘three pillars’ of a means‐tested aged pension, mandatory occupational superannuation and other, voluntary long‐term savings, is at the heart of understanding the fiscal implications of ageing. While the Intergenerational Report, an account of long‐term fiscal sustainability, is celebrating its tenth birthday since the first edition was published, the Superannuation Guarantee, first implemented in 1992, turns a sprightly 20 years old. This article considers the Intergenerational Report as a prism for studying fiscal, demographic and policy developments in the Australian retirement income system over the last decade and into the future.     

Retirement Policies and the Life Cycle: Current Trends and Future Prospects

During the 20th century, pensions in developed countries were generally payable from a statutory retirement age which provided a norm for retirement behaviour and a threshold dividing older from younger age groups. Governments, by setting fixed starting dates for work and retirement, created a standardised life cycle with clearly delineated and uniform boundaries between education, work and retirement stages. Over the last 30 years or so, retirement behaviour has diverged from official norms and moved towards earlier retirement, although pressures for later retirement are now increasing as concerns over pension finance provoke calls for older workers to remain economically active. Weaker retirement norms have prompted speculation that working practices may be evolving from a Fordist life cycle with fixed stages to post-Fordist life courses with fluid and variable personal experiences. This paper assesses current trends, asking whether they do indicate major changes in the life cycle, and considers the flexibility of retirement, paying particular attention to the influence of government and employers. Several ways in which retirement could develop are identified, but few of them remove the constraints on retirees: truly flexible retirement will not occur spontaneously and will require explicit policies to safeguard retirement choices.     

The Effect of Superannuation Tax Incentives on Salary Sacrifice Participation

In this study, we examine choices in voluntary superannuation contributions by Australian income earners. In particular, we focus on salary sacrifice contributions, which could attract a tax benefit of up to 30 percentage points. This study aims to evaluate how effective tax incentives are in stimulating salary sacrifice participation. Using a regression discontinuity framework, we measure the response of individuals to different levels of tax concessions on salary sacrifice contributions. Results indicate that current tax incentives have a limited effect, if any, on the decision to make salary sacrifice arrangements. This result is consistent with more recent empirical research from the Northern Hemisphere. It is likely that the lack of response is due to the complexity of the incentive schemes in Australia and competing vehicles for long‐term savings.     

The Diversification and Performance of Self-Managed Superannuation Funds

In this article we examine the diversification and performance of a small preliminary sample of Australian self‐managed superannuation (retirement) funds (SMSFs). Using the single index model and traditional (risk‐adjusted) performance measures within the context set by modern portfolio theory we find that the SMSFs in our sample exhibit considerable under‐diversification. In addition, we find that the SMSFs do not appear to be benefiting from even naive diversification and, unsurprisingly, perform poorly on a risk‐adjusted basis vis‐à‐vis the unmanaged S&P/ASX300 index. This empirical investigation contributes to economists' understanding of the microeconomic structure of this increasingly important component of Australia's retirement income stream.     

Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations*

The new Simplified Superannuation regulations for Australian superannuation provide tax concessions to retirement income streams which comply with legislated minimum drawdown rules. We evaluate these new drawdown rules against four alternatives, including three formula‐based ‘rules of thumb’ used by financial planners. We find that the new regulations are a substantial improvement on the previous rules for allocated pensions and, when compared with the formula‐based rules, are a good compromise in terms of simplicity, adequacy and risk. We also find that welfare is lower for most individuals who follow the Simplified Superannuation rules compared with welfare under an optimal path or a simple fixed percentage drawdown rule, but that outcomes could be improved through a further simplification of the new rules.     

A model of social insurance with variable retirement

Models are studied, in which ability to supply labour is affected by a random variable (health) not observable by government. When ill-health strikes, the consumer must retire, but he may choose to retire in any case. Optimal social insurance policies are found for one-period, two- period, and continuous-time models. It is found that, under plausible conditions, at the optimums consumers are indifferent whether to work or not, but do work when able. Insurance contributions decrease with age, and insurance benefits increase with age of retirement. It is desirable to prevent private saving. Some comments on the U.S. Social Security system are added.     

Social Security fixes--beware of conjurers!

Among the many proposals for reform, there is one that offers the best chance of truly solving Social Security's financial problems, these authors believe. That proposal would increase savings by requiring workers to invest an additional 2% of their covered wages in individual accounts. At retirement, 75% of the money would go toward buying the current level of Social Security benefits, and 25% would be given to the individual as an "extra" pension. Individuals, not the government, would control investment of these accounts.     

THE SYSTEMATIC RISK OF DEBT: AUSTRALIAN EVIDENCE*

This paper examines systematic risk (betas) of Australian government debt securities for the period 1979–2004 and makes three contributions to academic research and practical debate. First, the empirical work provides direct evidence on the systematic risk of government debt, and provides a benchmark for estimating the systematic risk of corporate debt which is relevant for cost of capital estimation and for optimal portfolio selection by asset managers such as superannuation funds. Second, analysis of reasons for non‐zero (and time varying) betas for fixed income securities aids understanding of the primary sources of systematic risk. Third, the results cast light on the appropriate choice of maturity of risk free interest rate for use in the Capital Asset Pricing Model and have implications for the current applicability of historical estimates of the market risk premium. Debt betas are found to be, on average, significantly positive and (as expected) closely related, cross sectionally, to duration. They are, however, subject to significant time series variation, and over the past few years the pre‐existing positive correlation between bond and stock returns appears to have vanished.     

Campaigning for retirement: State teacher union campaign contributions and pension generosity

Since Tullock (1972) first asked why there is so little money in U.S. politics, several studies have found evidence that political activism has the potential to yield significant returns. This study is the first to directly investigate the returns to public sector union activism by leveraging a transactions-level dataset from the National Institute on Money in Politics to estimate the relationship between teachers' union campaign contributions and the generosity of teacher pension systems. Our results show that more politically engaged teachers’ unions, as evidenced by their aggregate campaign contributions, are successful at both securing a higher level of retirement benefits and at shifting a greater burden of the financing of those benefits to the sponsoring government. Our estimates are in line with recent related studies and imply an investment return on campaign contributions of nearly 1500%.