RDP 9603: Australia's Retirement Income System: Implications for Saving and Capital Markets 6. Conclusions

The most important distinguishing features of the Australian system are that it is government-mandated but privately run, and that it has been able to make use of a well-developed financial infrastructure for superannuation saving, through which the new compulsory contributions could be channelled. This has meant that the financial system has adapted relatively smoothly to the new arrangements. However, the system has been criticised for being highly complex in its administrative rules and tax provisions. This complexity is a consequence of separate tax treatment of contributions from different sources, along with the cumulative effect of the various incremental changes that have been made, with successive layers of changes often embodying special provisions to protect previously accrued rights.

The new system is projected to have a substantial impact on aggregate saving, increasing it by as much as 4 per cent of GDP over the next three decades. However, it is still in an early part of the transitional stage and there has not yet been a sustained increase in net contributions to superannuation funds, even though there has been a big expansion of membership. In part, this probably reflects significant withdrawals of funds from the superannuation system in recent years through increased redundancies and early retirements. These leakages might not be entirely a cyclical phenomenon and may also reflect underlying incentives which affect the attractiveness of early retirement. The longer-term success of the system in meeting its objectives will depend critically on whether these leakages can be contained, by discouraging the use of lump-sum benefits to finance early retirement and by encouraging labour participation in the 55–65 age group.