RDP 2004-01: The Impact of Superannuation on Household Saving 1. Introduction

Over the last 17 years, Australian households have been encouraged to save more for their retirement through a range of pension schemes, including compulsory superannuation and tax incentives for voluntary superannuation. The wide-reaching nature of these policies is likely to have influenced households' saving behaviour.

Despite the continuing decline of the household saving rate since its peak in the 1970s, superannuation is likely to have increased the level of household wealth through flows into households' financial assets. This paper examines some of the causes of the decline in household saving, and attempts to measure the effect that superannuation growth has had in stemming the slide in the saving rate. Central to this exercise is the offset coefficient, which measures how much of the increase in saving through superannuation has been offset by a decrease in saving through other vehicles.

Most estimates of the compulsory superannuation offset in Australia to date have relied on judgment or extrapolation from the experiences of other countries. However, 17 years after the introduction of compulsory superannuation, we now have a sufficiently long time series available to estimate the offset coefficient econometrically. We find an offset coefficient of around 38 cents in the dollar, which lies within the range suggested by previous studies. This implies that less than half of the increased saving through superannuation has been offset by a reduction in voluntary saving, thus increasing households' saving rate, other things being equal.

Section 2 gives a brief overview of the superannuation system in Australia. Section 3 starts with some stylised facts on the determinants of the saving rate of Australian households over the last 40 years and then analyses the impact of superannuation on household saving in a small theoretical model. In Section 4 a household saving equation motivated by our theoretical analysis is estimated, with specific focus on the effect of superannuation on saving. Section 5 concludes.