RDP 2004-01: The Impact of Superannuation on Household Saving 5. Conclusions

This paper has attempted to analyse the impact on household saving behaviour arising from the changes to superannuation policies in Australia over the last 17 years. Our analysis takes account of other macroeconomic developments that are likely to have had a strong influence on the household saving rate over this period, especially the financial deregulation of the 1980s and the unprecedented increase in the value of household wealth in the 1990s.

In the first part of this paper we developed a stylised theoretical model in order to gauge the effect financial deregulation, unexpected capital gains on household assets and compulsory superannuation might be expected to have on the saving rate, household wealth and retirement consumption. The model suggests that compulsory superannuation is expected to increase the saving rate if there are households that are not able or not willing to offset the superannuation contributions through reduction in other saving or increased borrowing. This effect is expected to dissipate over time, as contributing cohorts become withdrawing cohorts – although the effect can last for several generations. In contrast, the positive effects on net household wealth and retirement incomes are permanent.

We then estimated a saving equation for Australia to gauge how much of the compulsory superannuation has – on average – been offset by reductions in other saving. We estimate that around 38 cents of each dollar in superannuation contributions are offset, or in other words, 62 cents in each dollar are saved additionally. We use these estimates to construct a counterfactual saving rate, which suggests that compulsory superannuation may have increased the household saving rate by up to 2 per cent in recent years. Overall, our results suggest that government policies encouraging superannuation have added to both household saving and wealth.