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Aggregate analyses of policies for accessing superannuation accumulations

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George Rothman
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Conference Paper 97/2

Paper presentaed at the Fifth Colloquium of Superannuation Researchers, University of Melbourne,11/12 July 1997.

RIMGROUP is a comprehensive cohort based lifetime accumulation modeldeveloped by the Retirement Income Modelling Task Force. This paper uses the RIMGROUP model framework to analyse the impact of important policy decisions about accessing superannuation savings as announced in the 1997-98 Budget. The policies considered are the new preservation arrangements such that from July 1999 all future contributions to superannuation and earnings will be preserved; the phased increase in the preservation age implemented in full by 2025; and tightening of the arrangements for early release of superannuation benefits. In addition the paper analyses the implications of a possible policy of allowing (targeted) persons access to their superannuation balances to assist them to purchase a first home.

The improved preservation arrangements are projected to lead to a significant increase in the aggregate level of superannuation assets and to a substantial increase in national saving reaching 0.9% of GDP by 2020. In the short term there is some loss of government revenue associated with reduced ETP taxation, but eventually this is reversed with a positive fiscal balance achieved. The tightened arrangements for early release of superannuation benefits have an impact of a very similar nature but at a much lower level.

The Government has released a discussion paper relating to allowing access to superannuation for the purposes of home ownership. Allowing first home buyers limited access to their superannuation balances, subject to a means test, would lead to a reduction in the balances of superannuation funds and a reduction in national saving of about 0.2% of GDP in 2020. Such a policy would result in some additional taxes on the withdrawals made, but over the long term this gain is more than offset by lower earning taxes, additional pension costs and lower income taxes from the retired.

Additionally new summary projections of Australian superannuation assets are provided which incorporate the policy decisions of the 1996-7 and 1997-98 budgets. Superannuation asset levels are projected to reach $365b in June 2000, $810b in 2010 and $1525b in 2020. Putting a reasonable bound of uncertainty around these figures suggests a range of $345-385b for June 2000, with higher percentage error bars as we go further out. The principal distributional feature by account type is the rise in the importance of Superannuation Guarantee accounts which are projected to increase from around 12% of total superannuation assets now to 23% in 2020.