Feng, Gerrans & Clark: Understanding superannuation contribution decisions – Theory and evidence

From the introduction:

Though the Australian superannuation system can trace antecedents to the 19th century, the modern phase emerged only as recently as the 1980s through the industry wide employment agreements (Awards) and cemented through the Superannuation Guarantee Act of 1992. The modern system is built around compulsion which currently results in 9.25 percent of salary being contributed to a complying superannuation fund by employers on behalf of employees. The rate is legislated to increase in increments to 12 percent by 2019. The compulsory employment based system complements the means‐tested government age pension and the voluntary savings of individuals. This paper is focused on the latter third “pillar” of the retirement income system; in particular, the voluntary savings undertaken and managed within the superannuation system. . . .

The direction of recent reviews, most recently the Super System review (Commonwealth of Australia 2010) and subsequent policy changes (MySuper), previously Simpler Super (Commonwealth Treasury 2006) and the Review of Australia’s Future Tax System (Commonwealth of Australia 2009) reflect a direct challenge to the assumption of an informed and engaged membership of funds. As the Super System Review bluntly assessed it “many consumers do not have the interest, information or expertise required to make informed choices” (Commonwealth of Australia 2010, p.5). In light of such evidence, this paper provides a review of individual retirement savings decisions with a focus on the contributions or savings behaviours. In particular, the paper examines lessons learned from international retirement saving systems and the limited number of studies examining the Australian superannuation system in order to provide a better picture of who and why people do or do not make voluntary contributions. We start with a brief introduction of the regulations governing voluntary contribution to superannuation and incentives offered. Then, the international literature is reviewed to examine the modelling of contribution behaviours. Particular attention is given to the role of demographics, plan specific features as well as tax incentives. We also provide evidence from the study of several publicly available micro‐level databases in Australia.  The final contribution is a preliminary analysis of member contribution behaviours using a new database provided by Mercer Australia.


Available for download here.