Mandatory Superannuation and Self-sufficiency in Retirement: An Application of the APPSIM Dynamic Microsimulation Model.

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Conference Paper

Abstract

One of the most significant concerns about the ageing population in Australia is the impact on pension costs. In Australia, one is entitled to a modest, fixed pension from age 65 onwards, subject to assets and means tests, regardless of how much was earned during one's working life. Mandatory occupational superannuation was introduced in 1993 to reduce future pension costs: a person with moderate to high levels of superannuation can provide for themselves to some extent and thus has a reduced pension entitlement. When individuals who have spent their whole working lives contributing to mandatory superannuation reach retirement age, it is hoped that a substantial proportion will have no need for a pension or will only require a part pension, easing future budgetary pressures. The ability of mandatory superannuation to reduce future pension costs is best modelled by dynamic microsimulation, as this takes into account the effect of numerous factors such as disability, child-rearing, employment history and life expectancy on superannuation levels. NATSEM has been developing APPSIM (Australian Population and Policy Simulation Model), a dynamic microsimulation model that projects a 1 percent sample of the Australian population out to 2050. This paper uses APPSIM to estimate what percentage of the population will be entitled to a) a full pension or b) a part pension under the following scenarios: higher labour force participation across the board; reduced disability among over-40s; higher labour force participation among primary carers of children and an increase in the mandatory superannuation contribution rate.

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