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Sensitivity Analysis

Date

In the projection process many judgements need to be made, including on future population, immigration levels and ages, participation rates, retirement ages, future expected returns of superannuation funds, and future levels of voluntary contributions. There is also sensitivity to government policies such as the Government Co-Contribution, and the Better Super policies.

Government policies such as the Better Super can have immediate effect, such as the removal of taxes on end benefits from a taxed fund for those aged over 60. Alternatively, some parameter variations may have significant impact only after a substantial period of time. Changing investment returns in our modelling to around 1 percentage point higher than the base case has limited impact initially, but much higher impact after say, a 30 years period, after which retirees (in accumulation funds) will enjoy much higher superannuation balances and consequentially higher retirement incomes. Ten years of consistently higher returns by 1 percentage point, generates about 8 per cent higher balances at retirement, while 30 years of higher returns increases average balances at retirement by about 15 per cent. Similarly higher voluntary superannuation contributions take a long time to show up in the projections.