Australian Superannuation System

The assets of superannuation funds have increased rapidly in the 1990s. Along with managed funds more generally, this growth has been considerably faster than the growth of assets of financial intermediaries. And the Australian superannuation fund assets have increased on average by 15 % a year over the past 10 years until 2007. It is equivalent to approximately 100 per cent of the value of Australia's annual Gross Domestic Product. While, the increasing trend stoped in 2008. In last financial year, total estimated superannuation assets decreased by 7.6 per cent in December 2008 quarter to $ 1.05 trillion.

As we are normal human beings, everyone will become old in one day. We may lose our ability to working. Therefore, the superannuation fund assets are created. It is a way of saving money to provide benefits for our retirement.

In the early 1980s, superannuation funds covered less than half of the workforce and existed mainly in the public sector and among large private sector employers. In recognition of the need to encourage individuals to provide for their retirement, from 1986 employer-provided superannuation benefits were introduced into industrial award arrangements.

In July 1992 the Superannuation Guarantee took effect, which, combined with the introduction of superannuation in awards, led to a marked increase in the membership of superannuation schemes. Prior to the inclusion of superannuation in industrial award agreements in 1986, only 47% of full-time employees were covered by super-annuation. In 1988, 64% of men working full time were covered, increasing to 86% by 1995. For women in full-time employment the growth in coverage was even more dramatic, from 47% in 1988 (substantially below that for men) to 89% in 1995. Those in part-time employment (particularly women) also improved their position over this period.(The Australia super website )

Superannuation coverage; sex by age and labour force status, Australia 1988 and 1995 (%)

Diagram 1:

Coverage of male population Coverage of female population

1988 1995 1988 1995

Labour force status

Employed full time 63.5 85.5 46.8 88.8

Employed part time 20.4 47.8 19.0 66.1

Unemployed 3.2 4.3 2.2 4.5

Not in labour force 1.8 2.4 1.5 3.1

Age

15 - 44 52.6 70.5 24.0 55.0

45 - 64 50.4 60.2 16.8 41.9

65 - 74 2.4 3.2 0.2 1.3

Superannuation is a retirement scheme in Australia. Most people begin saving super when they start work. Every employers are required to pay an additional amount base on employee's wages (currently 9%).(The ATO office ) This contribution was originally set at 3% of the employees' income, and has been incrementally increased by the Australian government. Since 1 July 2002, the minimum contribution has been set at 9% of an employee's ordinary time earnings but paid at least $450 (before tax) in a calendar month. (The ATO office)

Superannuation fund is a benefit after people are retire, it is strict government rules prevent early access to preserved benefits except in very limited and restricted circumstances, including servere financial hardship or on compassionate grounds, such as for medical treatment not available through medicare. Generally, superannuation benefits fall into three categories:

1. preserved benefit

2. restricted non-preserved benefits; and

3. Unrestricted non-preserved benefits.

Preserved benefits are benefits which must be retained in a superannuation fund until the employee's 'preservation age'. Currently, all workers must wait until they are 55 before they are able to access these funds. All contribution made after July 1, 1999 fall into this category.

Restricted non-preserved benefits are benefits which, although not preserved, cannot be accessed until an employee meets a condition of release, such as terminating their employment in an employer superannuation scheme.

Unrestricted non-preserved benefits are those which do not require the fulfillment of a condition of release, and may be accessed upon the request of the worker. For example, where a worker has previously satisfied a condition of release and decides not to access the money in their superannuation fund.

Superannuation funds are managed by trustees. Each fund has its own rules but must also follow government rules, designed to ensure the superannuation is properly managed. Funds that comply with these rules are called complying super funds. There are about 300,000 superannuation funds in operation in Australia. Of those, 362 have assets totaling greater than $ 50 million. There are six main types of superannuation funds:

- Industry Funds are multiemployer funds run by employer associations and /or unions. Unlike Retail/Wholesale funds they are run solely for the benefit of members as there are no shareholders.

- Wholesale master Trusts are multiemployer funds run by financial institutions for groups of employees. These are also classified as Retail funds by APRA

- Retail Master Trusts/ Wrap platforms are funds run by financial institutions for individuals

- Employer stand-alone Funds are funds established by employers for their employees. Each funds has its own trust structure that is not necessarily not shared by other employers.

- Self managed superannuation Funds (SMSFs or D0-IT- Yourself Funds) are funds established for a small number of individuals (usually fewer than 5) and regulated by the Commissioner of Taxation.

- Public Sector Employees Funds are funds established by governments for their employees.

Diagram 2:

Most superannuation is concessionally taxed at a flat rate of 15% at three points: on contributions, on earnings and another on the final payout. These taxes contribute over $6 billion in annual government revenue (The Age, 2006) Superannuation is a tax-advantaged method of saving as the 15% tax rate on contributions is lower than the rate an employee would have paid if they received the money as income. The Federal government announced in its 2006/07 budget that from 1 July 2007, Australians over the age of 60 will face no taxes on withdrawing monies