RDP 9112: The Role of Superannuation in the Financial Sector and in Aggregate Saving: A Review of Recent Trends 5. Conclusions

The paper has argued that the implications of growth of the superannuation sector depend importantly on the sources of that growth. In the 1980s, most of the growth occurred through high earnings rates, rather than through a high level of net contributions by members. Indeed, most of the medium-term variation in growth of superannuation funds has come from variations in real rates of return.

This historical fact has a strong influence on the paper's conclusions about the implications of growth in superannuation for the financial sector and for aggregate saving. The fact that superannuation funds did not attract significant increases in contributions makes it hard to argue that their growth in the 1980s occurred at the expense of other financial institutions. However, superannuation funds did increase as a share of the household sector's holdings of financial assets, largely through the mechanical effect of reinvestment of funds' earnings at high real rates of interest. The paper argued that superannuation funds and financial intermediaries have largely been competing in different markets, although rollover and other discretionary funds have recently emerged as an area where the superannuation sector may be competing more directly with banks for funds. At the margin, this may have had the effect of increasing the banks' cost of funds by reducing a potential source of lower cost deposits.

The fact that high superannuation savings were largely a result of high real interest rates also helps to explain why aggregate savings did not increase when superannuation savings did. High real interest rates appear to have had little net effect on saving but, by redistributing income from debtors to creditors, increased that part of saving that was occurring through superannuation. The paper does not offer a strong view on whether or not a lift in member contributions would significantly raise private saving. The 1980s do not provide a good test case of this proposition because a sustained lift in aggregate contributions did not occur.