Budget 2009-10 - Pension Review Report

Appendix E: Superannuation modelling

The modelling of superannuation presented in this report was undertaken by the Review. Unless otherwise stated, the results are for a person retiring after a full employment lifetime working under the Superannuation Guarantee.

Key assumptions are:

a person receives a 9 per cent Superannuation Guarantee payment that accumulates and is taken as a CPI indexed annuity over their post-retirement period
they have no other income-producing or assets tested assets
the life expectancy of a man is 88 years and a woman 91 years; these are based on the expected life expectancy of people aged 60 in 2042
in the model used, all taxation and income support parameters, as well as wages, are indexed by the product of price change and productivity growth
points in the earnings distribution have been derived from the ABS 2005–06 Survey of Income and Housing, based on the distribution of full-time adult earnings. It is assumed that the person earns at this rate (subject to shaping as discussed below) across their working life.

The employment pattern used to produce the results used in this report is one in which a person, from the age of 18 years, works a total of 40 years full-time and two years part-time and has two years not in the workforce.

The earnings rate is also slightly shaped over the person’s working life, rising from 65 per cent of the designated rate at age 18 to 100 per cent by age 30, and then declining from 100 per cent at age 55 to 86.5 per cent at age 64.

The replacement rates are based on the average income of individuals over their entire retirement relative to the net incomes they received in the last 10 years of employment prior to retirement.

Key parameters used in the model are CPI 3 per cent, productivity 1 per cent, super earning rate (accumulation) 7 per cent, super earning rate (annuity) 6.5 per cent.

[ top ]