Alternative Retirement Income Strategies: A Cohort Analysis of Lifetime Redistribution*

Abstract

This paper compares the lifetime redistribution and progressivity, within a cohort of males, of two retirement income systems. The current government strategy in Australia is to increase the role of occupational superannuation and maintain a means‐tested age pension. The Institute of Actuaries of Australia has recommended a universal pension with a corresponding smaller role for occupational superannuation. In terms of lifetime inequality and progressivity measures, it is found that there is not a substantial difference between the two systems. Other issues, such as the benefit choice at retirement and differential mortality, are found to be more important in determining the lifetime redistributive impact of a retirement income strategy.

Retirement in Australia: A Closer Look at the Financial Incentives

“…Studies concerning Australian retirement behaviour have long focused on financial aspects of retirement decisions (see, among others, Woodland 1987; Freebairn, Porter and Walsh 1989; Atkinson and Creedy 1996, 1997; Atkinson, Creedy and Knox 1996; Bacon 1999; Jefferson 2005). Of particular note here is the work of Atkinson and Creedy (1996, 1997) and Atkinson, Creedy and Knox (1996), who used the Lifetime Income, Taxation Expenditure and Superannuation (LITES) Model to simulate alternative routes through the ‘retirement maze’ and found that the taxation of superannuation and the age pension system provided no incentive to take superannuation benefits as an income stream rather than as a lump sum and that the means testing of the age pension created a substantial incentive to retire early. Also of note is the earlier work of Woodland (1987), who examined the effect of wages and pension entitlements on the probability of working full‐time or part‐time and found that age pension eligibility substantially reduced the probability of remaining in paid employment.…”

Decomposing Redistributive Effects of Taxes and Transfers in Australia: Annual and Lifetime Measures

“…9 On superannuation in Australia seeAtkinson et al (1996).10 This proportion is based on`total outlays' of various programmes as given in the 1996±7 DSS Annual Report.…”

Public Pension Reform in the United Kingdom: What Effect on the Financial Well-Being of Current and Future Pensioners?*

“…Therefore, investing superannuation lump sums in assets, especially home-ownership, is attractive so long as the household can avoid the capital asset test. Thus the fact that large numbers of pensioner households are in receipt of the means-tested benefit in retirement is in part a result of this age 'window' between choosing how to use superannuation and receipt of the old-age pension, during which individuals are allocating their resources in such a way as to avoid the impact of the means test (Atkinson, Creedy and Knox, 1996).…”