Summary of assumptions
- Hypothetical scenarios are modelled using current Superannuation Guarantee and Age Pension policy parameters.
- Scenarios are based on 75, 100 and 150 per cent of Average Weekly Ordinary Time Earnings (AWOTE). AWOTE covers full-time earnings of males and females, excluding overtime. This base corresponds to the earnings base of most superannuation plans. AWOTE is also the basis for indexing most dollar value thresholds in superannuation.
- Because most employees (70 per cent) earn less than AWOTE, results are provided for employees earning 75 per cent of AWOTE. Median earnings are 75 per cent of AWOTE with mean earnings being 83 per cent of AWOTE.
- As many individuals on incomes above 150 per cent of AWOTE have significant non-superannuation savings, SG cases are atypical and are not presented in the hypothetical scenarios.
- Career lengths of 25, 30 and 40 years are used, and all individuals (except for in the last two) are assumed to retire in 2032 so that real results are readily comparable.
- The preferred measure used to calculate replacement rates is the ratio of average expenditure in retirement (including drawdowns of capital) to expenditure in the last year of working life. This is considered an optimal measure as it captures the significantly different taxation circumstances before and after retirement.
- Expenditure is deflated by the consumer price index (CPI). Deflating by wages does not reflect what people are able to buy, and does not capture growth in real wages and the real value of the Age Pension over time.
- The following hypothetical cases use long-term annual growth parameters of 2.5 per cent for the CPI, 4 per cent for wages and 7 per cent for fund earnings.