Mandatory Superannuation and Self-Sufficiency in Retirement: An Application of the APPSIM Dynamic Microsimulation Model

Abstract

One of the most significant concerns about the aging population in Australia is the impact on pension costs. Mandatory occupational superannuation was introduced in 1993 to reduce future pension costs: a person with moderate to high levels of superannuation can provide for themselves to some extent and thus has a reduced pension entitlement. The ability of mandatory superannuation to reduce future pension costs is best modeled by dynamic microsimulation, as this takes into account the effect of numerous factors such as disability, child rearing, employment history, and life expectancy on superannuation levels. This article uses the Australian Population and Policy Simulation Model (APPSIM), a dynamic microsimulation model (DMSM), to estimate and simulate the distributional impact on superannuation savings of four different policy scenarios: higher labor force participation across the board; reduced disability among over-40s; higher labor force participation among primary carers of children; and an increase in the mandatory superannuation contribution rate.