Do Government Benefits for High Income Retirees Encourage Saving?

The Australian Commonwealth government provides a set of benefits to high income older people, which are intended to promote saving for retirement. It has not been established whether this unusual policy is effective. Using illustrative models, it is shown that these benefits may induce some people to save and work more, but they may have the opposite effect on other, more affluent, people. It is unclear which effect dominates. These benefits are likely to have increased Commonwealth government expenditure on affluent older people, accompanied by a reduction in state government expenditure on people with slightly lower incomes.