Australia’s approach to retirement incomes policy has three pillars: the means-tested age pension; compulsory superannuation; and voluntary saving, including saving via superannuation over and above that mandated by the superannuation guarantee. This paper examines the economic case for compulsory superannuation contributions and questions whether compulsory super is the most effective way of promoting household and national saving and reducing future demands on the federal budget from an ageing population when compared to alternative policy options. Most of the economic arguments for compulsory superannuation are second-best arguments made on the assumption that first-best outcomes are unattainable.
There is considerable scope for public policy to address adverse interactions between the three pillars, the tax system and public expenditure that will increase voluntary saving, improve retirement incomes and reduce future demands on the budget without relying on further increases in compulsory superannuation contributions. The paper recommends a shift in compulsion from the accumulation to the decumulation stage of retirement saving through the mandatory annuitisation of superannuation benefits. The second and third pillars of retirement incomes policy should be merged into a single pillar based on a politically robust regime of tax-advantaged long-term voluntary saving via housing and superannuation.