Modelling the sustainability of Australia's retirement income system

George Rothman
Publication type


Paper presented to the twentieth Colloquium of Superannuation Researchers, University of NSW, 12-13 July 2012.

Treasury's RIMGROUP model has been used extensively over recent years to analyse and fine tune important policy changes to Australia’s retirement income arrangements. Significant examples include the 2009 Age Pension increases and reforms, including the foreshadowed rise in age pension age, and the legislated increase in the Superannuation Guarantee to 12 per cent by 2019-20. RIMGROUP analysis has also been a significant input to all three Intergenerational Reports. In all these studies assessing long term sustainability using RIMGROUP projections has been an important part of the work.

It is clear that projections over a 30 to 40 year horizon are necessarily imprecise and involve many assumptions. This has been acknowledged in various papers by the author and others and has generally has been addressed through sensitivity analysis, which examines how robust the results are to key parameters and assumptions.

This paper extends and updates that work, reviewing the impact on projected long term costs (and hence sustainability) of Australia's retirement income arrangements of key parameters, assumptions and policies including:

  • long term superannuation returns;
  • the rise in the Superannuation Guarantee from 9 to 12 per cent;
  • the low income superannuation contribution;
  • the reduction in tax concessions for very high income earners introduced in the 2012 budget;
  • the uses made of accumulated superannuation at retirement;
  • asset drawdown rates in retirement;
  • pension levels and means tests;
  • the increase in age pension eligibility age;
  • demography, particularly participation and longevity; and
  • rate of growth of GDP, particularly as influenced by productivity.

The paper also presents a long term projection of tax expenditures on the retirement income system – an area where long term projections are rare.

The paper finds that Australia is in a very strong position in relation to the sustainability of its retirement income arrangements compared with almost any other country in the world. However given the significant part of the government's budget involved, the increasing costs as the population ages and the many factors influencing sustainability, this relative strength should not lead to complacency.