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Superannuation and Saving

  • Steven Morling

    (Reserve Bank of Australia)

  • Robert Subbaraman

    (Reserve Bank of Australia)

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    The system of providing for retirement income in Australia has undergone marked changes over the past two decades, particularly in the 1980s when changes in pension entitlements and superannuation legislation encouraged a sharp rise in superannuation saving. However, there has been no obvious pickup in aggregate household saving, raising the possibility that households may have offset the increase by reducing other forms of saving. Our results suggest that, in the past, there has been a significant degree of substitution between superannuation and other forms of saving, although the offsets have not been complete. Our estimates are not very precise, but they suggest that, over the past 35 years, about three-quarters of superannuation saving has been offset by changes in other saving. The results are consistent with the results of recent overseas studies which find large offsets between saving through retirement income plans and other forms of saving. It is too early to tell whether the new superannuation arrangements will generate significant increases in aggregate household saving, although a number of features of the new arrangements suggest that offsets between superannuation and other forms of saving are likely to be smaller than in the past. In particular the new arrangements rely heavily on compulsory rather than voluntary saving, as well as expanding the coverage of superannuation among those wage and salary earners who are most likely to be liquidity constrained. For these reasons the new arrangements are likely to generate increased superannuation saving with smaller offsets against other saving than earlier schemes.

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    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9511.

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    Date of creation: Dec 1995
    Date of revision:
    Handle: RePEc:rba:rbardp:rdp9511
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    1. Palle S. Andersen & Neale Kennedy, 1994. "Household saving and real house prices: an international perspective," BIS Working Papers 20, Bank for International Settlements.
    2. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    3. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
    4. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    5. Bewley, R. A., 1979. "The direct estimation of the equilibrium response in a linear dynamic model," Economics Letters, Elsevier, vol. 3(4), pages 357-361.
    6. Bateman, H. & Frisch, J. & Kingston, G. & Piggott, J., 1990. "Demographics, Retirement Saving, And Superannuation Policy: An Australian Perspective," CEPR Discussion Papers 241, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    7. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    8. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
    9. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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