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The Effect of the Australian Superannuation Guarantee on Household Saving Behaviour

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  • Ellis Connolly

    (Reserve Bank of Australia)

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    Abstract

    Individual pension accounts are growing in importance as a pillar of retirement incomes policy in the developed world. Policy-makers have generally assumed that by introducing pre-funded pension schemes, they can increase household wealth and thereby raise retirement incomes. However, there has been relatively little empirical work to confirm this. This paper focuses on the effect of Australia’s system of compulsory pension accounts, the ‘Superannuation Guarantee’, on household saving behaviour. Microeconomic data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, are used to explore three related questions: i. Have compulsory pension accounts increased household wealth? ii. What effect do compulsory pension accounts have on voluntary saving for retirement? iii. Do compulsory pension accounts influence the timing of retirement? This paper finds that Australia’s compulsory pension accounts increased household wealth. Voluntary saving for retirement in pension accounts also appeared to increase slightly, possibly due to the added convenience of being able to make contributions directly into these pension accounts. Finally, there is no evidence of a significant effect on retirement intentions. Overall, the results suggest that Australia’s compulsory pension accounts have increased household wealth and raised self-funded retirement incomes.

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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2007-08.

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    Date of creation: Aug 2007
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    Handle: RePEc:rba:rbardp:rdp2007-08

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    Keywords: superannuation; household saving; pension reform; HILDA;

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    References

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    1. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
    2. Andrew A. Samwick, 1998. "New Evidence on Pensions, Social Security, and the Timing of Retirement," NBER Working Papers 6534, National Bureau of Economic Research, Inc.
    3. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
    4. Douglas W. Elmendorf & Jeffrey B. Liebman, 2000. "Social Security Reform and National Saving in an Era of Budget Surpluses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 1-72.
    5. Alberto Abadie & David Drukker & Jane Leber Herr & Guido W. Imbens, 2004. "Implementing matching estimators for average treatment effects in Stata," Stata Journal, StataCorp LP, vol. 4(3), pages 290-311, September.
    6. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
    7. Gianni La Cava & John Simon, 2003. "A Tale of Two Surveys: Household Debt and Financial Constraints in Australia," RBA Research Discussion Papers rdp2003-08, Reserve Bank of Australia.
    8. John Freebairn, 2004. "Some Long-Run Labour Market Effects of the Superannuation Guarantee," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(2), pages 191-197, 06.
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    Cited by:
    1. Amy Beech & Rosetta Dollman & Richard Finlay & Gianni La Cava, 2014. "The Distribution of Household Spending in Australia," RBA Bulletin, Reserve Bank of Australia, pages 13-22, March.
    2. David Law & Lisa Meehan & Grant M Scobie, 2011. "KiwiSaver: An Initial Evaluation of the Impact on Retirement Saving," Treasury Working Paper Series 11/04, New Zealand Treasury.

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