Superannuation in Australia is acting like a sovereign wealth fund and is on track to boost savings each year by three per cent of GDP.
In a major speech last week on Compulsory Superannuation and National Saving, Treasury researchers David Gruen and Leigh Soding said that despite perceptions of low domestic savings rates, Australia's 24% gross savings rate matches Germany's and compared to other OECD countries is second only to Japan's 26%.
The big question however is to what extent does Australia's compulsory super system lift savings given that this is one of superannuation's fundamental objectives.
Gruen and Soding said about 30% of what is contributed into superannuation would have been saved anyway particularly by higher income earners who divert monies into it because of the tax concessions.
For low income earners they said the substitution is likely to be very low if it existed at all.
This lower than anticipated substitution effect helps explain why superannuation is considered to have a very positive influence on total national savings. In the last decade it added an average extra one per cent of GDP to savings each year and by 2030 is expected to boost national savings by as much as three per cent each year.
By boosting savings and making this capital available for later post-retirement consumption, Gruen and Soding said superannuation is acting as de facto sovereign wealth fund.
"Australia has a relatively high gross national saving rate, particularly when compared to other Anglophone countries with similarly deregulated financial systems. There are two noteworthy contributors to this relatively high national saving rate: a long history of prudent fiscal policy, and the compulsory superannuation system.
"A large stock of financial assets has been built up gradually in the Australian super system, a consequence of both compulsory and voluntary contributions into the system," they said.