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The impact of the new superannuation scheme on long-term personal saving

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Phil Gallagher
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Conference Paper 95/7

Paper published in Julian Disney and Richard Krever (eds) Superannuation, Savings and Taxation, Deakin University Printery 1996.

This paper presents an aggregate and a hypothetical analysis of the Government's policy for member superannuation contributions and matching Government co-contributions announced in the May 1995 Budget. The aggregate analysis contains some improvement on the Retirement Income Modelling Task Force estimates presented in Saving for Our Future (Willis, 1995) and gives a more comprehensive presentation of the analysis of the national savings effect of the policy. The hypothetical analysis addresses equity issues which have been raised by the Australian Council of Social Service (ACOSS) and the Consumers Federation of Australia.

The new member and co-contributions policy is an addition to the Government's policies of the Employer Superannuation Guarantee (SG) and Award Superannuation which were both additions to the system of voluntary superannuation. Prior to 1986, superannuation was encouraged by tax concessions. This voluntary system achieved coverage of 40% of employees by employer sponsored schemes and lower coverage of the self-employed. Covered employees were likely to be public sector workers and higher income and white collar private sector workers. Many of these schemes included contributions from employees.

In 1986, the Government encouraged the spread of superannuation among employees by agreeing with the Australian Council of Trade Unions to support 3% of wages being paid as new or improved superannuation as part of a productivity agreement. Award superannuation raised coverage from 40% to 80% of employees by 1992. However, employees not covered by awards were not included in the scheme and contributions of 3% of the award wage would not generate a substantial increase in retirement income.

In 1992, the then Treasurer, John Dawkins, announced the Employer Superannuation Guarantee which would:

  • extend coverage beyond awards to employees earning over $450 per month;
  • raise minimum employer contributions to 9% by 2002/03;
  • count existing contributions towards the required level of contributions (with the value of contributions to defined benefit funds certified by actuaries); and
  • involve new standards for preservation, vesting and prudential supervision.

At the time, the Government "envisaged" employee contribution of 3% and contributions from the self-employed (Dawkins, 1992, p3).