Is increasing the superannuation preservation age welfare-improving in Australia?

An interesting feature of some developed countries is that they run a three-pillar retirement income system. The pillars are: (1) A means-tested pension; (2) A supplementary pension; and (3) Voluntary employee contributions. The supplementary pension is usually composed of compulsory employer contributions. Governments frequently allow individuals penalty-free access to the supplementary pension prior to the government retirement age, an age known in Australia as `the preservation age'. Under an asset tested pension, early access to the supplementary pension may incentivise individuals to retire early and run down their assessable assets in order to be eligible for the government pension. Using an Overlapping Generations (OLG) model, we analyse the economic implications of two separate policies: (a) Different preservation ages; and (b) The introduction of compulsory employee contributions to the supplementary pension system. We find that increasing the preservation age in Australia, from the current age of 60, with or without compulsory employee contributions is welfare improving in the long-term for every household, except the richest. Allowing households to borrow at the world interest rate, we observe welfare improvement for every household, irrespective of household wealth.