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Superannuation in Australia has a history that’s over 150 years long, but it’s really only in the last three decades that it’s become accessible to all working Australians.
In that time, it’s undergone constant change, but does that mean we’re worse off than before – or better?
Let’s take a look at the highs and lows over time…
Date Change Good, bad or average? Pre 1900s A private superannuation system was introduced in Australia around the mid 1800s, but only for a small minority of wealthy managers and some public sector employees. Good for those it covered (it was nowhere near the 9.5% of wages we have today), but bad for the majority of Australians that had no retirement income. 1909 The Federal Government introduced an age pension of £26 per year. This was paid to eligible men and women from 65. Then in 1910 the pension age for women was reduced to 60 years. Good – Much better than no retirement income at all. 1915 The Income Tax Assessment Act 1915 introduced tax deductibility of employer superannuation contributions made on behalf of employees. Superannuation fund earnings were also made exempt from taxation. Good – Made employers more likely to contribute. 1920s – 1960s Not much happened with regard to superannuation, aside from a Royal Commission into a National Insurance scheme that would also cover retirement. Average – A bit disappointing that so little progress was made over 40 years. 1961 Commonwealth government declared superannuation fund investments would only be exempt from tax if they held a required amount of Commonwealth Bonds. Bad – superannuation has never escaped government meddling. 1967 Australia’s first employer-sponsored industry fund – the Stevedoring Employees Retirement Fund (SERF) – was established. Employers contributed 1.5 times the employee’s contribution rate, plus 100% for years of service back to 1942. Good – The beginning of Australia’s industry superannuation funds. 1974 32% of Australian workforce covered by superannuation – 36% male, 15% female. In the public sector 58% had super while in the private sector only 24% had super. Average – Things were improving for Australian workers, but it was slow. 1977 Fraser Liberal government decided not to establish a national contributory superannuation scheme following an inquiry the previous year that recommended a partial contributory scheme. Bad – Pension alone not enough to fund retirement. 1983 The new Hawke Labor Government expresses support for an employee superannuation system. Good 1984 Superannuation fund for the building industry – CBUSS – created. The fund’s board consists of an equal number of employer and employee or union representatives. Good – Another step in the right direction for super funds. 1986 Prices and Incomes Accord Mark 2 in which, the Hawke Government and unions negotiate a 6% increase to wages, 3% of which was to be employer superannuation. Accord Mark 2 was unsuccessfully challenged by employer groups. The National Wage Case then established guidelines for industry superannuation funds to operate by. Good – This was the beginning of the superannuation guarantee as we know it today. 1990 64% of all employees are covered by superannuation. Average – Still nearly 40% of the workforce not covered. 1992 The Labor Government implemented the superannuation guarantee – extending superannuation coverage to 72% of workers. Employers were required to make superannuation contributions on behalf of their employers on a scale of 3%, rising to 9% over the next decade. Great – The start of compulsory superannuation. 1993 Superannuation Industry (Supervision) Act 1993 (SIS Act) – The Act that governs and supervises superannuation funds introduced. Good – Provided a revised framework for the regulation of superannuation. 1996 The Superannuation surcharge – an extra 15% tax on certain contributions (usually from people on higher incomes) was introduced. Bad – For those who had to pay it. 1999 A new category of superannuation fund – the self managed superannuation fund (SMSF) – introduced via an amendment in the SIS Act. Good – A new superannuation option for the self-directed investor. 2000 87% of workers covered by superannuation. Average – Still 13% falling outside the super safety net. 2002 Maximum age for superannuation contributions increased from 70 to 75 if someone was working more than 10 hours a week. Good – Helpful for building balances. Also Family Law Act amended to include superannuation as part of a couple’s assets for divorce. Good – Provides equity in marriage breakdowns. 2003 Superannuation surcharge reduced from 15% to 12.5%. Good Co-contribution, whereby government would match an employee’s after-tax contribution into superannuation, introduced for low/middle income earners. Good – Provided a means for those with lower incomes to boost super. 2004 Superannuation Safety Amendment Act 2004 requiring all superannuation trustees of large eligible funds (not SMSFs) to be licensed.
Superannuation surcharge reduced further to 10%.
Good – Both good measures in terms of building balances and ensuring super funds were managed well. 2005 Superannuation surcharge abolished and transition to retirement pensions made available for those who haven’t yet retired or completely left the workforce.
Choice of superannuation fund introduced.
Good – Less tax to pay on contributions and more flexibility around superannuation funds and retirement options. 2006 Liberal Treasurer Peter Costello announces “Simple Super” which includes exemption of tax on superannuation once retired if over 60, and no tax on a lump sum or a superannuation pension.
Costello also introduced the ability to make a one off $1 million after-tax contribution to superannuation between 10 May 2006 and 30 June 2007 as long as the work test was met.
Good – The $1 million gave a lot of people the opportunity to significantly boost their superannuation. 2008 Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Bill 2008 passes through Parliament. The bill meant that same-sex couples have the same access to death benefits from superannuation schemes or the tax concessions on death benefits as opposite-sex couples. Good – Another step forward for equality. 2009 Annual limit on concessional contributions reduced from $50,000 to $25,000 for 2009-10 and beyond. Non-Concessional contribution limit still $150,000. Average – Limits ability to build balances. 2013 Scheduled increases in the superannuation guarantee – from 9% to 12% – commenced with first increase to 9.25%. Good – However it has been stalled at 9.5% since 2014. Now scheduled to increase to 10% in July 2021. Those that make excess concessional contributions to be taxed at an individual’s marginal tax rate. Average – Limits means by which people can boost super. 2017 The investment earnings on transition to retirement pensions (TTRP) no longer tax-free and will be taxed at 15%.
Non-concessional contributions cap reduced from $150,000 to $100,000.
Bad – Means the strategy of reducing your work hours but still maintaining the same income (via TTRP) and contributing to super is no longer as effective. Introduction of the transfer balance cap – the new limit on the amount of superannuation that can be held in a tax-free retirement phase account or supporting a pension. The limit starts at $1.6 million but will be indexed. Average – Transfer balance cap is designed to introduce more equity into the system, however it also introduces more complexity. 2018 Carry-forward rule introduced for concessional contributions if your overall superannuation balance is less than $500,000. Good – Means you can roll up unused contribution caps to get more into super. Downsizer contribution introduced. From 1 July 2018, if you’re 65 years old or older and have owned your home for 10 years or more you can contribute up to $300,000 into superannuation from the proceeds of selling your home. Good – Allows another helpful boost to super that doesn’t count towards your contributions cap and is not impacted by the size of your total superannuation balance.
What’s the end result?
Overall super is better than it ever was but if the above table proves anything it’s that there will always be tinkering with superannuation, and at certain times this tinkering will be favourable – such as Peter Costello’s one-off $1 million after-tax contribution cap and the more recent downsizer contribution.
So, it may be best to take advantage of the favourable changes when you can, as it’s unlikely they’ll be around forever.