The Australian Retirement Lottery: A System Failure

35 Pages Posted: 12 Jun 2013

See all articles by Amandha Ganegoda

Amandha Ganegoda

ANZ (Australia and New Zealand) Banking Group, Ltd.

John R. Evans

Centre for Analysis of Complex Financial Systems

Date Written: June 6, 2013

Abstract

Sudden market crashes can wipe out a significant part of individuals’ wealth. The purpose of this paper is to assess the impact on retirement savings by taking into account both the Knightian risk arising from market volatility under normal market conditions as well as the Knightian uncertainty arising from rare but severe market shocks. Given the low frequency, high impact of market shocks, and the format of the Australian retirement system, the result is that cohorts of Australian retirees will enjoy very different levels of retirement income and there will be consequent shocks to the demand for the Age Pension supplement and potentially, significant variations in the standard of living in retirement for Australian employees. Whilst the Australian retirement system has been put forward as a model for other economies to follow, we find there is a fundamental flaw in the system.

Keywords: Superannuation Guarantee Levy, Retirement Funding, Market Shocks, Econometric modelling

JEL Classification: G17, G18

Suggested Citation

Ganegoda, Amandha and Evans, John R., The Australian Retirement Lottery: A System Failure (June 6, 2013). Available at SSRN: https://ssrn.com/abstract=2277247 or http://dx.doi.org/10.2139/ssrn.2277247

Amandha Ganegoda

ANZ (Australia and New Zealand) Banking Group, Ltd. ( email )

Melbourne, Victoria
Australia

John R. Evans (Contact Author)

Centre for Analysis of Complex Financial Systems ( email )

PO Box 363
Summer Hill, 2130
Australia

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