y2. The Superannuation System in Australia
Superannuation has been used in Australia as a policy instrument to increase retirement incomes and reduce reliance on the age pension (which is provided by the government). Tax concessions have existed for superannuation since 1914.1 Until the 1980s, interest and capital gains on superannuation funds were not taxed. However, the extent of tax concessions has since been reduced. In 1986 compulsory superannuation was introduced in Australia. The system initially applied to employees on Federal awards, with 3 per cent of their earnings saved in superannuation funds in lieu of wage rises.2 The system was extended to apply to most employees in 1992 under the Superannuation Guarantee Charge (SGC), with the contribution rate gradually raised to its current level of 9 per cent of earnings and coverage increased to 90 per cent of employees.
Perhaps not surprisingly, households’ superannuation assets as a proportion of GDP almost quadrupled in Australia over the last 20 years (Figure 1), and are now the second largest component of household wealth after non-financial assets, which comprise mostly housing.3 However, the growth in superannuation funds (or their equivalent) was an experience shared by the US and the UK, which do not have compulsory superannuation schemes in place.
Valuation effects were an important factor behind the unprecedented growth in superannuation assets over the 1980s and 1990s, explaining around 70 per cent of the rise in current price terms in the UK and over 60 per cent in the US between 1988 and 2000. The importance of market movements is also evident in the reduction of the value of holdings of these assets since 2000 and the more volatile experience of the UK, where equities represented a much larger proportion of assets over the 1990s. However, valuation effects explain only one-third of the rise in