What the GFC means for superannuation Two points of view
Simon Kelly 12 August 2009
Overview Australia’s retirement income system Retirement and the GFC APPSIM Impact of the GFC
Individual
Government
2
Australia’s three-pillar solution
Public Pension
Compulsory Private Savings
Voluntary Private Savings
3
Age Pension ● Funded out of general taxation revenue ● Flat-rate, means-tested payment ●
No geographical adjustments
● Means-test checks both current income and assets ●
Both have free thresholds and then tapered withdrawal
●
Family home excluded from assets test
● Men eligible from age 65; women from age 63.5 years ●
Increasing from 65 years to 67 years from 2017 to 2023
4
Age Pension Means Test
Income test Free threshold
Asset test
Part payment
Free threshold
cut-off
Part payment cut-off
$ per fortnight
$ per fortnight
$
$
Homeowner Single
142
1,581
178,000
562,000
Homeowner Couple
248
2,642
252,500
891,500
Non-homeowner Single
142
1,581
307,000
691,000
Non-homeowner Couple
248
2,642
381,500
1,020,500
Maximum Rates of Payment: $569.80 (single) and $475.90 (each for a couple)
Source: Centrelink, effective from 1 July 2009
5
Age Pensioners
6
Superannuation ● Compulsory (from 1992) ●
Aims to reduce dependence on the public Age Pension
●
SG = Employer contribution of 9% of salary
● Voluntary ●
Co-contributions from government for low income earners
●
Taxation concessions for middle/high income earners
● Preservation age is currently 55 years ●
you can draw-down for any purpose from age 55
●
Gradual increase to age 60 legislated from 2015-2024
●
Henry Review will recommend gradual alignment with pension age
● Tax-free withdrawals from age 60 years 7
Mean Superannuation (2006)
Source: ABS 2005-06 Survey of Income and Housing Data File
8
Distribution of superannuation
Source: ABS 2005-06 Survey of Income and Housing Data File
9
Retirement and the Global Financial Crisis
Total and super weekly income in retirement
Source: ABS 2005-06 Survey of Income and Housing Data File
11
Superannuation
12
Mean household asset values Mean $ values
25-34
35-44
45-54
55-64
65-74
75+
Cash Deposits
29,300
29,900
32,400
65,400
52,500
67,700
Shares
5,000
11,000
13,500
24,300
25,500
52,700
Net Business
33,400
64,800
125,400
166,800
106,400
19,700
Other Properties
25,700
48,000
112,900
79,400
88,700
35,300
Superannuation
30,500
54,900
82,900
103,800
75,100
34,900
Income producing Wealth
123,900
208,600
367,200
439,500
348,200
210,300
Source: NATSEM calculations using ABS 2005-06 Survey of Income and Housing confidentialised data files
13
The Australian Population and Policy Simulation Model (APPSIM)
History ● Treasury Intergenerational Report highlighted policy changes coming ● Model required to look at equity issues ●
Modelling underlying the IGR is at an aggregated level
●
New modelling capacity required to assess: – the distributional impact of future changes – the inter-generational redistributive impacts – the likely capacity to pay of different groups
● Dynamic microsimulation provides both aggregate and distributional outcomes
15
APPSIM ● 5 year project, started in late 2005 ● First prototype due Dec 2009 ● Funded by the ARC and 12 Commonwealth Govt agencies ● Similar to SESIM (Sweden), DESTINIE (France), MOSART (Norway), DYNACAN (Canada), PENSIM (UK)
16
APPSIM ● Provides a snapshot output of the characteristics of the population and government programs as at 30 June each year. ● Base data is Australian 2001 Census one per cent sample file (188,000 people) ● Full population model, with individuals being aged to about 2050; discrete yearly time unit ● Panel data being used to estimate transition probabilities ●
Only 6 years of data, 7000 households, sample size problems
● Alignment used to match ABS population projections and Treasury labour force projections
17
Processes being modelled within APPSIM Health & Aged Care
New Year ?
Demographics
Household Formation & Movement
Taxation
Education & Training
Social Security
Household Assets & Debt
Labour Force
Other Income & Expenditure
Earnings Housing
Green shading denotes initial module construction completed or well underway
18
Using APPSIM to model the GFC impact
The GFC scenario Impact of the financial crisis on superannuation ● Baseline Scenario ●
Historical superannuation fund returns up to 2008 T
●
-6.4% in 2008
Long term average 2009 onwards
● Financial Crisis Scenario ●
Historical superannuation fund returns up to 2008 T
-6.4% in 2008
●
Zero for 2009-2012
●
Reduction in voluntary contributions when poor returns
●
Long term average 2013 onwards 20
Simulated outcomes align with known benchmarks 3500 Alternate Scenario APRA Super
Total Super (2009 $ Billio ns)
3000
Baseline (history + long-term average) 2500
2000
1500
1000
500
0 2001
2006
2011
2016
2021
2026
2031
2036
2041
2046
2051
Experimental projection output only, APPSIM still under development, May 2009
21
Compare scenarios - government view 2009
2019
2029
2039
Gov’t AP Outlays – Baseline
100.0
134.3
166.6
187.5
Gov’t AP Outlays – Financial Crisis
100.7
137.7
168.5
204.1
0.7
3.5
1.9
16.6
100.0
154.2
226.7
283.0
75.8
117.2
187.1
269.6
-24.2
-37.0
-39.5
-13.5
Difference Total Super – Baseline Total Super – Financial Crisis Difference
Experimental projection output only, APPSIM still under development, May 2009
22
Compare scenarios Impact on superannuation by birth cohort Age in 2009 Birth Cohort and Generation
2019 %
25-34
Born 1975-1984 Generation X and Y
-3.7
35-44
Born 1965-1974 Generation X
-20.1
45-54
Born 1955-1964 Baby Boomers
-25.9
55-64
Born 1945-1954 Baby Boomers
-
Experimental projection output only, APPSIM still under development, May 2009
23
In summary ● Individual viewpoint ●
Superannuation is a significant financial asset – Reduced living standard in retirement
●
GFC has reduced superannuation by more than 20%
●
Impact will be felt for many years
●
Biggest impact on 35-54 year olds
● Government viewpoint ●
Significant impact on superannuation contributions tax
●
Increased reliance on Age Pension ÆHigher pension outlays
●
Delayed impact
24
www.natsem.canberra.edu.au
Simon Kelly
