Superannuation and societal benefits
Introduction
Many of you now know that superannuation is a crucial investment for our retirement. It is largely no longer the case that we may simply live off our savings and a government pension, when we no longer work. The costs of retirement have increased considerably, so to have a comfortable retirement will mean working to build up our superannuation investment funds. Superannuation allows employers and employees to co-contribute to a minimal tax investment plan for the future. This chapter explains the basics of superannuation and discusses the benefits to society of this investment option. See image 1.
What is superannuation?
Superannuation is forced savings for your retirement (aged 55 or over). At present, the main form of superannuation is a compulsory superannuation contribution payment by your employer (9 per cent). This means that when you receive a wage or salary from work, a compulsory payment equivalent to 9 per cent of your wage or salary is contributed to a superannuation fund. Imagine you earn $40 000 a year. The compulsory super guarantee payable by your employer on this $40 000 will be $3600. This $3600 will, in normal growth conditions, grow with compound interest over the course of your working life. Compulsory payments made by employers are referred to as Superannuation Guarantees (SG).
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Balanced portfolios of managed funds may also include superannuation. There are over 240 000 superannuation funds in Australia. Many working Australians are choosing to manage their own superannuation earnings, through 'Do It Yourself' (DIY) funds. These are best for those with at least $100 000 in personal savings. There are around 1500 DIY super funds in Australia and they have fairly minimal administrative costs, compared to the costs of other investment options like property. Most superannuation funds are accumulative (they build over time) and this sees the contributions of employers and employees grow, with acquired interest earnings and less management costs. Most superannuation contributions and earnings are taxed at a flat rate of 15 per cent. This reflects the attraction of compound interest, where flat tax allows investment earnings to build up over time (people normally work for 40 years or more, leaving considerable superannuation to retire on). An estimate of 12 per cent of annual income over 40 years will have to be contributed to a super fund to enjoy a comfortable retirement.
What are benefits to society of superannuation?
Employers are required by law to provide employees with a superannuation payment, which is to be used by employees upon retirement. There will be a much higher proportion of people of retirement age in the future (we are an ageing population), so superannuation has emerged as an essential way to take the financial burden off governments. Superannuation has therefore been made an attractive investment option for individuals through changing taxation rules to encourage individuals to add to their superannuation funds and increasing the number of workers whose employers add to their superannuation schemes.
In 1986, employers were required to contribute a minimum of three per cent of employees' salaries to a new or existing superannuation scheme. By 1992, 88 per cent of full-time employees were receiving superannuation contributions from their employers. Also in 1992, the Federal government introduced a minimum superannuation guarantee levy in order to ensure that all workers received superannuation for their retirement. By 2002-2003, employers had to place an amount equal to nine per cent of employees' salaries into a superannuation scheme.
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