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The Australian retirement lottery: A system failure

Author

Listed:
  • Amandha Ganegoda

    (ANZ Bank, Melbourne, VIC, Australia)

  • John Evans

    (Sydney Business School, University of Wollongong, Sydney, NSW, Australia)

Abstract
The purpose of this paper is to assess the adequacy of the Australian retirement system to fund the needs of retirees by taking into account both the Knightian risk arising from market volatility under normal market conditions as well as the Knightian uncertainty arising from rare but severe market shocks. We have also taken into account changes in employment during the pre-retirement phase. Given the low frequency, high impact of market shocks, the result is that cohorts of Australian retirees will enjoy very different levels of retirement income and there will be consequent shocks to the demand for the Age Pension supplement and potentially, significant variations in the standard of living in retirement for Australian employees. Whilst the Australian retirement system has been put forward as a model for other economies to follow, we find there is a fundamental flaw in the system.

Suggested Citation

  • Amandha Ganegoda & John Evans, 2017. "The Australian retirement lottery: A system failure," Australian Journal of Management, Australian School of Business, vol. 42(1), pages 3-31, February.
    • Handle: RePEc:sae:ausman:v:42:y:2017:i:1:p:3-31
    DOI: 10.1177/0312896214554267
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    References listed on IDEAS

    as
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    6. Basu, Anup K. & Drew, Michael E., 2010. "The appropriateness of default investment options in defined contribution plans: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 18(3), pages 290-305, June.
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    8. Blake, David & Cairns, Andrew J. G. & Dowd, Kevin, 2001. "Pensionmetrics: stochastic pension plan design and value-at-risk during the accumulation phase," Insurance: Mathematics and Economics, Elsevier, vol. 29(2), pages 187-215, October.
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    Cited by:

    1. John Evans & Abdul Razeed, 2018. "An Analysis of the Australian Superannuation System's Taxes and Transfers," Economic Papers, The Economic Society of Australia, vol. 37(3), pages 299-312, September.

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    More about this item

    Keywords

    Superannuation guarantee levy; retirement funding; market shocks; econometric modeling;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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