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Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations

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Author Info
HAZEL BATEMAN
SUSAN THORP

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Abstract

The new Simplified Superannuation regulations for Australian superannuation provide tax concessions to retirement income streams which comply with legislated minimum drawdown rules. We evaluate these new drawdown rules against four alternatives, including three formula-based 'rules of thumb' used by financial planners. We find that the new regulations are a substantial improvement on the previous rules for allocated pensions and, when compared with the formula-based rules, are a good compromise in terms of simplicity, adequacy and risk. We also find that welfare is lower for most individuals who follow the Simplified Superannuation rules compared with welfare under an optimal path or a simple fixed percentage drawdown rule, but that outcomes could be improved through a further simplification of the new rules. Copyright © 2008 The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 84 (2008)
Issue (Month): s1 (09)
Pages: S17-S31
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Handle: RePEc:bla:ecorec:v:84:y:2008:i:s1:p:s17-s31

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Olivia S. Mitchell et al., 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December. [Downloadable!] (restricted)
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  2. Blake, David & Cairns, Andrew J. G. & Dowd, Kevin, 2003. "Pensionmetrics 2: stochastic pension plan design during the distribution phase," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 29-47, August. [Downloadable!] (restricted)
  3. Olivia S. Mitchell & John Piggott & Michael Sherris & Shaun Yow, 2006. "Financial Innovation for an Aging World," NBER Working Papers 12444, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October. [Downloadable!] (restricted)
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  5. Kingston, Geoffrey & Thorp, Susan, 2005. "Annuitization and asset allocation with HARA utility," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(03), pages 225-248, November. [Downloadable!]
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  6. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005. "Annuities and Individual Welfare," American Economic Review, American Economic Association, vol. 95(5), pages 1573-1590, December. [Downloadable!]
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  7. Suzanne Doyle & Olivia S. Mitchell & John Piggott, 2004. "Annuity Values in Defined Contribution Retirement Systems: Australia and Singapore Compared," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(4), pages 402-416, December. [Downloadable!] (restricted)
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  1. Konstantin Petrichev & Susan Thorp, 2007. "The Private Value of Public Pensions," Research Paper Series 211, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  2. Susan Thorp & Hardy Hulley & Rebecca McKibbin & Andreas Pedersen, 2009. "Means-Tested Income Support, Portfolio Choice And Decumulation In Retirement," CAMA Working Papers 2009-12, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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