Optimal Superannuation Guarantee for heterogeneous groups of Australians

Abstract

The focus of this thesis is on retirement savings decisions and their impact on individual welfare in an Australian context. Chapter 2 examines the role of the mandatory contribution rate, known as the Superannuation Guarantee (SG). The research then turns to investigate the influence of housing arrangements. Chapter 3 builds a 'cascade model' that supports the simulation of economic outcomes including housing-related variables. This model is applied in Chapter 4 to analyse the implications of housing arrangements for individual consumption outcomes and savings decisions, including the optimal SG. The key finding is that there is no single 'one-size-fits-all' optimal SG that suits all individuals; and that the optimal SG varies substantially with income levels and consumption objectives as well as other factors. This research develops a 'cascade model' that simulates integrated long-term projections for interest rates, incomes, house prices, rents, and (superannuation) fund returns intending to support life-cycle modelling. Allowing for house tenure and housing consumption choices, this research finds that the optimal SG increases with income levels for both renters and owners but is much lower for owners. This analysis provides insights into the design of the superannuation system by highlighting how the optimal SG level varies considerably with various individual attributes and is impacted by the role that is intended for social security including the Age Pension, rental assistance, and related supplements and potentially individuals' behavioural decision-making effects. The analysis shows that purchasing a home can significantly reduce the savings required for retirement through the superannuation system. This research poses the question of whether purchasing a home can substitute mandatory saving schemes in the presence of the publicly funded Age Pension.