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Superannuation, or ‘super’, forms the basis of our retirement income, including compulsory and voluntary contributions from our employer and ourselves. Its aim is to help keep us financially secure when we move into a post-work lifestyle and has been a crucial part of Australian lives for more than 100 years.
To help understand the current state of super, it’s helpful to look at the history of superannuation in Australia, and understand how our retirement income system compares to others around the world.
Laying the foundations for retirement living in Australia, the Aged Pension was introduced in 19091. At this time, the Aged Pension was approximately £26 per year. Before this was introduced, anyone who wasn’t working had to fund their own retirement.
In 19152, the Income Tax Assessment Act introduced income tax, while also making the investment earnings of superannuation savings --- for those who had it --- tax-free, and employer contributions tax-deductible.
The Australian Government’s timeline shows that between 1950 and 1985 there were a number of changes to the Aged Pension, but no introduction of private or guaranteed superannuation. The timeline reports that a study by the Australian Bureau of Statistics in 1974 revealed only 32% of the workforce were covered by super, mostly males.
In 1983 the Bob Hawke Labor Government expressed support for the principles of employee superannuation and in 1986 it joined with the Australian Council of Trade Unions (ACTU) in seeking a universal 3% superannuation contribution by employers to be paid into an industry fund, in lieu of a wage rise for workers. This “accord” was endorsed by the Conciliation and Arbitration Commission February 1986.3
By 1988, 51.3% of Australian employees were covered by super, rising to 64% by 1990.4
From 1991, the Superannuation Guarantee (SG) was introduced. This compulsory superannuation system ensured Australian employers paid their employees’ super, boosting super coverage to 80%.
Super coverage continued to rise from the 1990s, and in the 2000s Australians were able to choose their own super fund, and were given the opportunity to transition to retirement.
The SG has increased since 1991, from 3% to 9%, and then 9.5% in 2014. It is currently legislated to increase to 10% on 1 July 2021.
In analysing global superannuation funds, it can be helpful to look at the Melbourne Mercer Global Pension Index (MMGPI). The report ranks and compares retirement income systems in terms of their adequacy, sustainability and integrity, translating to an overall score.
As of 2019, Australia ranked third with an overall rating of 75.3, only behind Denmark and the Netherlands. The main reason behind this is the compulsory SG that enables Australians to grow their super simply by working.
The report highlights that countries like Australia, which are increasing their retirement age while still increasing their level of savings, tend to rank higher and have a more successful retirement income system.
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1. 2. 3. 4. https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/0910/ChronSuperannuation
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