RDP 9112: The Role of Superannuation in the Financial Sector and in Aggregate Saving: A Review of Recent Trends 1. Introduction

Assets held by superannuation funds grew during the 1980s at annual rates averaging about 20 per cent, making this the fastest-growing of the major components of household wealth. Several factors contributed to this rapid growth, the most important of which was probably the high rate of earnings on superannuation funds during the decade. The sector was also influenced by a number of regulatory changes, including two major sets of changes to the taxation arrangements (in 1983 and 1988) and the move to award-based superannuation following the 1986 National Wage Case. The net result of all these factors was that superannuation assets were rising not only at a much faster rate than incomes, but were also growing relative to the assets of the financial system as a whole, notwithstanding the rapid expansion of financial intermediaries' balance sheets during the decade. At the same time, it is widely recognised that the growth of superannuation did not lead to a rise in the private sector's saving rate.

These developments have prompted a lot of discussion about two sets of issues: the likely long-term effect of superannuation on private saving, and the effect which the growth in relative importance of superannuation might have on other parts of the financial system. This paper does not try to address these questions directly, but attempts the more basic task of setting out a detailed factual background to the issues. It does so by reviewing, first, the growth of the superannuation sector and its causes; secondly, the role of superannuation in the financial sector as a whole; and thirdly, the relationship between superannuation and aggregate saving.