Superannuation

Background

Superannuation refers to the arrangement where an organization or an individual sets aside funds during their working life to provide financial support during retirement. It is primarily a financial strategy designed to ensure that individuals have a stable and secure source of income once they are no longer working.

Historical Context

The concept of superannuation has its roots in various pension schemes that date back centuries. Historically, these were often provided by governments or large corporations and were a form of defined benefit plan. In more recent decades, the movement has shifted to defined contribution plans where the benefits received are dependent on the contributions made over time and the returns these contributions generate.

Definitions and Concepts

Superannuation encompasses both the payments made to retired employees and the contributions deducted from employees still in the workforce. These contributions finance the future payments and are oftentimes accompanied by employer contributions, tax incentives, and government regulations aimed at encouraging saving for retirement.

Major Analytical Frameworks

Classical Economics

Classical economics did not extensively cover superannuation, as focus was predominantly on issues of wealth of nations, market efficiencies, and labor value without specific regard to retirement schemes.

Neoclassical Economics

Neoclassical economics evaluates superannuation in terms of individual saving behaviors, incentives provided by tax policies, and the role of market efficiencies in managing pension funds and their investments.

Keynesian Economics

In Keynesian economics, superannuation is viewed through the lens of aggregate demand and economic stability. State-provided pensions and government regulations encouraging superannuation savings are seen as stabilizers for economic cycles and crucial for ensuring continuous consumer spending in retirement years.

Marxian Economics

Marxian economics would critique superannuation as an institution within capitalist economies that illustrates both the exploitation of labor and the systemic issues of providing for the proletariat post-employment, reliant on accumulated capital controlled by employers or the state.

Institutional Economics

Institutional economics assesses superannuation systems by examining the legal, financial, and social institutions that shape retirement planning and funding. This perspective highlights the role of government policies and regulatory bodies in ensuring fair and efficient management of retirement savings.

Behavioral Economics

Behavioral economics studies the psychological factors that influence how individuals plan and save for retirement within superannuation systems, factoring in biases, heuristics, and the impact of incentives or defaults on saving behavior.

Post-Keynesian Economics

Post-Keynesian economics might analyze superannuation with an emphasis on social justice, inequality, and the role of state intervention in ensuring equitable retirement support for all citizens, particularly in considering the adequacy of income provided by superannuations.

Austrian Economics

Austrian economics could emphasize the voluntary nature of contributions and the role of individual responsibility in financial planning, often critiquing state-mandated superannuation schemes as impinging on personal freedom and market forces.

Development Economics

From a development economics perspective, superannuation is considered crucial in building sustainable financial systems in emerging economies, providing a pathway out of elder poverty and economically enabling the aging population.

Monetarism

Monetarist views on superannuation may focus on its implications for long-term monetary stability, including the potential impacts on national savings rates, inflation, and the overall demand for money.

Comparative Analysis

Different countries have varying approaches to superannuation, from wholly funded systems with significant government involvement (like Australia’s superannuation system), to private pension plans predominant in the USA. Comparative analysis could explore the efficacy of these systems concerning coverage, adequacy, sustainability, and economic effects.

Case Studies

Australia: A Comprehensive Superannuation System

USA: Public vs. Private Pension Plans

Sweden: Publicly Managed Pension Funds

Suggested Books for Further Studies

“Superannuation: Theory and Practice” by Ross Clare
“Retirement Saving: Options and Opportunities” by Anthony Neuberger
“Economics of Pensions: The Role of Retirement Income Systems in the Economy” by Salvador Valdés-Prieto

Pension: A regular payment made during a person’s retirement from an investment fund to which that person or their employer has contributed during their working life.
Defined Benefit Plan: A type of pension plan in which an employer promises a specified monthly benefit on retirement, predetermined by a formula based on the employee’s earnings history, tenure of service, and age.
Defined Contribution Plan: A retirement plan in which the employer, employee, or both make contributions on a regular basis and the final benefits received depend on the investment’s performance.
401(k): A defined-contribution plan in the United States where employees can make contributions from their paycheck either before or after-tax,