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The impact of tax on the prospects of achieving target retirement wealth in Australian default superannuation plans

Published on 01 Apr 17 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

Prior empirical studies on superannuation in Australia have investigated the adequacy of superannuation to fund retirement on a pre-tax basis. Also, government policy in this area is often predicated on simplistic assumptions and methodologies, with little or no empirical evidence of the impacts of superannuation taxation arrangements on retirement wealth and the adequacy of default superannuation plans. This “baseline” study fills this gap in the literature by providing evidence about the prospect of a representative member of a complying superannuation fund in Australia, on retirement, having sufficient accumulated superannuation to adequately fund their retirement under current taxation arrangements. We assume the fund utilises a typical default asset allocation, and we use a bootstrap simulation approach to generate relevant asset returns. We compare a representative retiree’s terminal wealth at vesting age with a nominal retirement wealth target. Our results suggest that a representative member under current superannuation taxation arrangements has a roughly 50% chance of not accumulating sufficient superannuation to meet a reasonable retirement wealth target by retirement age.

Author profiles

Osei K Wiafe
Osei is a Research Fellow, Griffith Centre for Personal Finance and Superannuation, Department of Accounting, Finance, and Economics, Griffith Business School, Griffith University, Brisbane, Australia.
Current at 1 April 2017
Dr Brett Freudenberg CTA
Photo of author, Brett FREUDENBERG Brett Freudenberg is an Associate Professor – Taxation at Griffith University (Australia). Brett is known for his research expertise in the tax law and policy issues facing private enterprises, as evidenced by his Fulbright Scholarship (2006) and over 50 refereed publications in leading Australian and international journals. Associate Professor Freudenberg’s research has analysed whether Australia should introduce a tax flow-through company (S Corporation), the tax treatment of discretionary trusts and the motivation for choice of business structure. Associate Professor Freudenberg’s research has informed government policy as he was invited to present his PhD research findings to the Australian Treasury as part of the Henry Tax Review. Brett is passionate about education being a transformative process, and his effectiveness as a teacher has been recognised through five national awards (including the award of two Australian Learning and Teaching Council citations: 2008 & 2011). - Current at 29 May 2017
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Lisa Samarkovski CTA
Photo of author, Lisa SAMARKOVSKI Lisa is a sessional staff member in tax, Griffith Business School, Griffith University. - Current at 01 April 2006
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Richard Copp
Richard is a Senior Lecturer, Department of Accounting, Finance, and Economics, Griffith Business School,Griffith University, Brisbane, Australia.
Current at 1 April 2017
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