What Dividend Imputation Means for Retirement Savers

Abstract

We use a stochastic life-cycle model to examine the implications for Australian retirees of full access to dividend imputation credits. We find that the availability of imputation credits can justify a significant bias towards Australian equities in retirement portfolios, largely at the expense of world equities. We also generate estimates of the value of imputation credits to retirees, finding it could potentially support increased consumption during retirement of 5%-6%, or the equivalent of a higher balance at retirement by 8%-9%. Our study enhances the understanding of equity home bias and provides insights relevant for public policy.

Keywords: Retirement, Dividend Imputation, Life-Cycle Models, Portfolio Construction, Home Bias

JEL Classification: E21, E27, G11, G15, G38