This year ESSA, in partnership with the Boston Consulting Group and the Grattan Institute, ran Australia’s first ever public policy case competition. The topic was “Superannuation: Australia’s retirement plan”.
The ageing population presents a long-term, complex and challenging policy task for present day Australia. Teams were asked to identify plausible and sensible policies targeting superannuation and/or the pension system with the goal of ensuring that the growing numbers of retirees have sufficient means to live comfortably well into old age. As illustrated below, the most popular proposals included better engaging the consumers of the superannuation system, a default low-fee fund to foster stronger competition between providers, and increasing the workforce participation rate of older Australians.
Percentage of teams recommending particular policies
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The three finalist groups all demonstrated a thorough understanding of the underlying issues, and presented compelling cases for the implementation of their proposals. Presenting such a case is a particularly difficult task. Public policy almost inevitably involves trade-offs, and considerations of plausibility and effectiveness are often in disharmony.
The judging panel of John Daley (Grattan Institute), James Hollingsworth (BCG), and John Freebairn (The University of Melbourne) ultimately decided that Stephanie Mercuri and Samuel Dean – pictured below with John Daley and John Freebairn – were most impressive in fulfilling the brief.
Stephanie and Samuel summarised their proposal as follows:
Our proposal attempts to counter this (the challenges posed by the ageing population) by merging the pension and superannuation systems.
It involves a government mandate for individuals to purchase a lifetime annuity at retirement from the private market, affording a reliable income until death. Income from the annuity must be greater than or equal to a minimum ‘pension’ income. If an individual does not have enough superannuation wealth to purchase the minimum annuity, the government provides the difference subject to new asset and income tests.
The preservation and retirement ages will be increased to 70 and the contribution rate to 15%. Voluntary contributions and the lump sum option are to be abolished. Superannuation contributions are taken from post-tax income, and super wealth in excess of the price of the annuity is taxed at the capital gains rate.
In order to put downward pressure on fees, there should be a default super fund that is put out to competitive tender. Consumers can review their current fund and compare it with the tender winning default at tax time. In the case of annuity provider default, the government provides money for the purchase of a new minimum annuity. Prudential regulations that govern superannuation funds are extended to annuity providers and economy wide tax reductions are introduced to maintain revenue neutrality.
Compulsory annuitisation was chosen over other reforms for its efficient longevity risk sharing. The purpose of our reform was to return superannuation to its original purpose: ensuring individuals fund their own retirement.
The chart below presents which ideas tended to correlate with higher scores. Focusing on annuitisation proved to be a successful approach. Indeed, all three finalists incorporated some form of the concept into their submissions.
Average score of teams by included proposal
While most of these proposals had some common overarching characteristics, teams exhibited a vast amount of variation in the finer detail of implementation. It is this ‘nitty-gritty’ that makes public policy the ideal platform for those looking to challenge themselves. Feedback from members of the final three groups highlighted the unique and stimulating nature of the competition.
Stephanie Mercuri (winner):
“The ESSA Case Competition gave us infinite latitude to confront a major Australian policy problem, as well as experience in presenting and defending creative recommendations.”
Norman Yan (equal runners-up):
“The ESSA Case Competition is unique amongst university case competitions. While most are focused on the numbers and the business side of an issue, ESSA encouraged us to look at all sides of an issue. Not only the business and financial side, but also the social and political side. It was an overall more rounded affair that allows people of all majors and degrees to participate, not just economics students.”
Diego May Ferral (equal runners-up):
“What I most enjoyed was discussing the policy issue with my team. The initial thoughts were motivated by the background and ideology of each member, but through discussion and research we reached very compelling and irrefutable arguments.”
Wheels are already in motion for the 2015 competition, which will be extended to Monash University students, and students of all types are strongly encouraged to consider participation.