Individual pension accounts are growing in importance as a pillar of retirement
incomes policy in the developed world. Policy-makers have generally assumed that
by introducing pre-funded pension schemes, they can increase household wealth
and thereby raise retirement incomes. However, there has been relatively little
empirical work to confirm this. This paper focuses on the effect of Australia’s
system of compulsory pension accounts, the ‘Superannuation Guarantee’, on
household saving behaviour.
Microeconomic data from the Household, Income and Labour Dynamics in
Australia (HILDA) Survey, are used to explore three related questions:
i. Have compulsory pension accounts increased household wealth?
ii. What effect do compulsory pension accounts have on voluntary saving for
retirement?
iii. Do compulsory pension accounts influence the timing of retirement?
This paper finds that Australia’s compulsory pension accounts increased household
wealth. Voluntary saving for retirement in pension accounts also appeared to
increase slightly, possibly due to the added convenience of being able to make
contributions directly into these pension accounts. Finally, there is no evidence of a
significant effect on retirement intentions. Overall, the results suggest that
Australia’s compulsory pension accounts have increased household wealth and
raised self-funded retirement incomes.