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Saving for retirement: The benefits of superannuation for individuals and the nation

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Phil Gallagher, George Rothman and Colin Brown
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Conference Paper 93/2

This paper analyses the effects of retirement income policies on individuals (and couples) and on national savings and Commonwealth tax expenditures using the current computer models of the Retirement Income Modelling Task Force.

The analysis of individuals (and couples) at differing income levels and work histories shows the increase in disposable income in retirement as a percentage of age pension and in comparison to pre-retirement disposable income. The associated savings gains and offsets, net policy gains and accruing tax expenditures are presented and explained using seven hypothetical cases. The income maintenance approach to retirement incomes is contrasted to the poverty alleviation approach.

The paper demonstrates how the tax expenditure estimate for superannuation is not appropriate for long term analysis. New data on the distribution of non-superannuation assets are used in an analysis of the likely level of household savings if compulsory superannuation were paid as wages.

An aggregate projection model is used to examine the possible impact of superannuation policy on national saving out until 2056 and how this is sensitive to plausible alternative non-superannuation savings patterns and other assumptions. The impact of the SGC policy and its possible extensions on total age pension outlays and, total tax expenditures, is explored.