Superannuation Policies and Behavioural Effects: How Much Age Pension?
26 Pages Posted: 15 Apr 2013 Last revised: 26 Jun 2013
Date Written: June 26, 2013
This paper presents long term projections of the cost of public pensions in Australia, taking into account behavioural effects. I assume retirees make financial decisions to maximise their lifetime utilities, and their consumption and asset allocation react to policy changes. I find that the future cost of the Age Pension is likely to be higher than estimated by Australian Treasury in 2010's Intergenerational Report. As future cohorts retire with more savings, they can allocate more money into owner-occupied properties while preparing for retirement and draw down their savings faster, to optimise their Age Pension entitlements. This paper also examines how projected future Age Pension costs are affected by various policy changes, including the legislated increase of superannuation guarantee from 9 percent to 12 percent, the possible changes of including the value of family home in the asset test, and indexing Age Pension payments to price inflation instead of wage inflation.
Keywords: public pension, national budget, household behavior, financial planning
JEL Classification: G11, H31, H55, H68
Suggested Citation: Suggested Citation