Retirement planning in the light of changing demographics

With increasing longevity and decreasing fertility rates, governments and policy makers are increasingly engaged in the question of long term retirement planning. In many cases this has included emphasising the need for individuals to take more responsibility for their own retirement planning through tax incentives, compulsion and changes to the age at which state retirement benefits become available. In the case of Australia, as is considered here, long term retirement planning has been focused around the development of a compulsory defined contribution (DC) superannuation system. Here we investigate the interaction between population ageing and the sustainability of the superannuation system by modelling a general superannuation scheme to compare the adequacy of retirement funds under a number of alternative scenarios. The model incorporates stochastic longevity forecasts and provides insight into the sufficiency of compulsory retirement saving both now and future. We find that the current pension scheme is more robust to longevity improvements for mid-class individuals however significant gaps arise for low-income individuals as longevity improves. Without addressing these issues, government expenditure is expected to increase substantially.