Super adds to Savings

A research paper released by the Reserve bank this week shows that Australia's compulsory super system makes a net contribution to household wealth (i.e. it is not offest by reduced saving elsewhere). It also found that people receiving compulsory super contributions were more likely to make voluntary saving than others. The paper can be found at http://www.rba.gov.au/PublicationsAndResearch/RDP/RDP2007-08.html

The RBA research foudn that household wealth increases by around 70 to 90 cents for every extra dollar in compulsory super accounts. Biggest effect is for financially constrained households. The probability of making voluntary contributions is 19 per cent higher if the household receives compulsory contributions. Whilst one would expect households to first offset compulsory contributions in super accounts by reducing voluntary contributions, it is possible that compulsory contributions lead to higher voluntary contributions by highlighting the importance of retirement saving and making it more convenient. This result is similar to findings for the United States where households are more likely to voluntarily save in pension accounts if they are automatically enrolled by their employer.

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