The adequacy of Australian retirement incomes - New estimates incorporating the Better Super reforms

Dr George Rothman
Publication type


Conference Paper 07/1

Paper presented to the 15th Colloquium of Superannuation Researchers, University of New South Wales
19 July 2007 - 20 July 2007

The views in this Paper are those of the authors and do not necessarily reflect those of the RIMA Unit, the Treasury or the Government.

This paper has benefited from comments and suggestions provided by Julie Tinnion, Simon Lambert, Phil Gallagher, Trevor Thomas, Nigel Murray, Chris Timotheou, Olga Evans and Kane Travers. The contribution is also acknowledged of Simon Lambert of the RIMA Unit who carried out the detailed update of RIMGROUP.

Treasury’s RIMGROUP model has been used to prepare new estimates of aggregate adequacy for both the whole Australian population and for subsets by gender and income. The analysis is based on the version of RIMGROUP which has been used for some of the projections of the 2007 Intergenerational Report and incorporates the Better Super Reforms.

While there is a body of published material on retirement income adequacy in Australia, most of this is of a hypothetical nature, projecting, for example, the expected replacement rate for an individual of given income and saving rate retiring in say 35 years time. The aggregate analyses presented here use a comprehensive cohort based model to cover the range of labour force experiences including part time work, differing retirement ages, differing total superannuation contribution rates by age, gender and income and the contribution of savings outside superannuation. The evolution of the retirement income system and changing replacement rates over time is explicitly shown. The estimates provided an update of those in a 1999 Colloquium paper by the author (and Julie Tinnion).

One aggregate model in the public eye is the IFSA 'Savings Gap' model. This paper provides alternative estimates which challenge whether an aggregate savings gap actually exists over the longer term and also raises issues about aspects of the IFSA modelling.

For the representative fifth decile of employment income, the current replacement rate is estimated at a moderate 52% but is projected to rise strongly to reach 60% by 2010 and 70% by around 2015. Replacement rates for men and women are found to be similar in the short term. Over the longer term the replacement rates for women are projected to exceed those of men.