Question

What happens to Australian output per worker and the growth of output per worker in the long run if the current age pension system is shifting to the fully funded social security system?

-refer to the output per worker and long run growth effects as others have not been able to answer this question properly on other threads.

Answer 1

• To get Age Pension you generally need to have been an Australian resident for at least 10 years in total. For at least 5 of these years, there must be no break in your residence.
• Australia has a three-pillar pension system.

Types of pensions

• Public Pensions:Australia's state pension system operates on a non-contributory basis and is financed by general tax revenues. .
• Personal pensions:Retirement savings accounts (RSAs) are low-cost pension schemes offered by deposit-taking institutions or life insurance companies. They operate under the same tax rules as superannuation accounts.
• Occupational Pensions:This is a defined contribution (DC) system that requires a minimum contribution to a superannuation fund. Before the compulsory superannuation system was introduced, DB schemes were the more popular form of occupational pension provision.

Current Age Pension age

Date of birth	Age Pension age	Date that Age Pension age changes
Born between 1 January 1954 and 30 June 1955	66 years	1 July 2019
Born between 1 July 1955 and 31 December 1956	66 years and 6 months	1 July 2021
Born from 1 January 1957 onwards	67 years	1 July 2023

• Fully funded is a description of a pension plan that has sufficient assets to provide for all the accrued benefits it owes and, therefore, can meet its future obligations. In order to be fully funded, the plan must be able to make all the anticipated payments to both current and prospective pensioners.
• In a fully funded system each worker makes contributions toward social security via the social security tax, and the contributions are invested by the social security program. The program therefore builds up a pension fund for each worker. The total pension benefits through this system.
• A fully funded social security system forces each worker to save an amount at least equal to the tax they pay.  In this case a fully funded sytem will have no effect on the equilibrium outcome.
• In a fully-funded scheme, pensions are paid out of a fund built over a period of years from its members’ contributions. With Pay-As-You-Go (PAYG) schemes, in contrast, pensions are paid out of current income. fully funded schemes are based on savings ,contributions are invested in financial (or possibly physical) assets, the return on which is credited to the scheme’s fund. While fully-funded schemes can take many forms, in principle they always have sufficient reserves to pay all outstanding financial liabilities.

Social Security payments to individual recipients stimulates economic activity in many areas, including businesses, labor income, employment, and tax revenue. Social Security benefits also have a significant effect in every state—big and small, rural and non-rural.

In a fully funded social security system ,it tends to inhibit . or promote economic growth.

Under fully funded social security system growth rates are no longer negatively affected.