The ‘Right’ Level for the Superannuation Guarantee: A Straightforward Issue by No Means

31 Pages Posted: 4 Feb 2020

See all articles by Gaurav Khemka

Gaurav Khemka

Australian National University (ANU)

Yifu Tang

Australian National University

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: January 11, 2020

Abstract

We deploy a stochastic life-cycle model to examine how differing levels of the superannuation guarantee (SG) impact on the welfare of individual Australians under existing superannuation, tax and pension eligibility rules. Our main focus is the effect of various assumptions on the optimal SG, emphasizing the role of income and the retirement objectives of the individual. The analysis supports estimating the gains and losses from changing the SG for various individuals, and associated impacts on net government revenue. We find the optimal SG to vary substantially with income and objectives. While our baseline analysis indicates a SG of below the current level of 9.5%, higher estimates emerge if access to the Age Pension is excluded, and if the SG is used as a mechanism to self-insure against living to a very old age, being forced into early retirement, or incurring lower investment returns. We conclude that the case for raising the SG above 9.5% depends on the underlying assumptions, with the policy objectives that the SG is intended to achieve being critical.

Suggested Citation

Khemka, Gaurav and Tang, Yifu and Warren, Geoffrey J., The ‘Right’ Level for the Superannuation Guarantee: A Straightforward Issue by No Means (January 11, 2020). Available at SSRN: https://ssrn.com/abstract=3517590 or http://dx.doi.org/10.2139/ssrn.3517590

Gaurav Khemka

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Yifu Tang

Australian National University ( email )

Australia
0435492284 (Phone)

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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