Mandatory Retirement Saving in Australia

* This paper was prepared at the request of Estelle James, to whom we are grateful for detailed comments on an earlier draft. Geoffrey Kingston also offered valuable insights. 1. Introduction This paper focuses on the Superannuation Guarantee, as Australia's mandatory retirement saving plan is called. We begin by laying out its essential features, and offer an account of its genesis. We then critically assess its current and likely future efficacy. So far as possible, we try to relate the Australian experience to that of countries who may be contemplating the adoption of such a policy in the foreseeable future. The paper concludes with a description of the emphases of the current government, whose victory earlier this year will test the robustness of bipartisan support for the Superannuation Guarantee and its cluster of related policies. The Superannuation Guarantee corresponds to national earnings related retirement income schemes operating overseas, such as the US Social Security system. However, in the Australian case, mandating private provision has been chosen as an alternative to public provision. Chart 1 summarises its main features. Introduced in 1992, it mandates employers to make " superannuation " (pension) contributions on behalf of their employees to complying superannuation funds of their choice: employers that fail to do so are subject to the Superannuation Guarantee Charge. These contributions are placed in individual accounts and invested on behalf of the employees. The arrangements apply to all employers and to almost all employees. Employees earning less than $A450 per month are specifically excluded on the grounds of high relative administrative costs for small contributions. The mandatory contributions are fully vested (ie., the member is fully entitled to all accrued benefits), fully preserved (ie., accrued benefits must remain in a fund until the statutory preservation age for access to benefits is reached), fully funded and must be paid into a complying superannuation fund. The superannuation funds are 2 managed by a board of trustees, with equal representation of employers and employees. In current practice, the chosen funds are frequently industry-based. The minimum level of superannuation support is being phased in, gradually increasing over the next 6 years. In 1998 the employer contribution is 7%, with 9% scheduled to be reached by 2002. It is thought that over the next 4 years labour productivity growth will more than offset the impost of the Superannuation Guarantee, so that real wages will not actually fall. Employees …