Superannuation is a savings system designed to provide financially for Australians in their retirement.

This is usually in the form of savings that are built up by a combination of compulsory and voluntary contributions for an individual over their working life and are preserved (out of reach) for a very long time before they can be accessed, usually upon retirement.

A simple way to look at it (in the case of most superannuation savings) is:

your employer’s contributions
+  your voluntary contributions
+  investment returns (these can be positive or negative)
–  fees, charges and tax
=  balance upon retirement

There are various types of superannuation funds and types of accounts that Australians can choose for their superannuation.

Recent history

From as early as the 1950s, various industries had superannuation arrangements as part of their industrial awards. But for most, the only money for your retirement was how much you saved and Government pensions.

In 1992, the Government introduced the Superannuation Guarantee. This is the Government regulated system that is still in place in Australia.

Since its introduction, most employers have been required to make compulsory contributions to superannuation as part of their employee’s wages. This was originally set at 3% of the employees' income, and has been gradually increased to the current level at 9% of an employee's ordinary time earnings. The 9% is not (generally) payable on overtime rates but is payable on remuneration items such as bonuses, commissions, shift loading and casual loadings. An increase to the 9% rate has been announced but is not yet law.

Choice of Fund - 2005

From 1 July 2005, changes to the Federal legislation enabled many Australian employees to choose which superannuation fund their employer's future superannuation guarantee contributions are paid into. Choice of Fund allows employees to:

• tell a new employer to make SG contributions to their current fund
• choose a super fund with lower-fees and/or better service
• choose a better performing superannuation fund.

Better Super - 2007

Better Super is the name given to the superannuation reforms introduced mainly from 1 July 2007. It is also sometimes referred to as 'Simpler Super'.

The aim of Better Super was to simplify superannuation savings and its tax treatment to provide Australians with more flexibility in retirement.

Some of the key points of the Better Super changes include:

• tax free super income and lump sums from age 60 for members of taxed superannuation funds (Health Super is part of a taxed superannuation fund).
• a limit (initially $50,000 but later reduced to $25,000) on the amount of concessionally taxed superannuation contributions (concessional contributions) that can be made to your super each year. Concessional contributions are typically your employer’s contributions and any salary sacrifice contributions you make. A transitional limit (initally $100,000 but later reduced to $50,000) each year applies for people aged over 50 until 30 June 2012.
• a limit of $150,000 per year (or $450,000 in a three year period) for non-concessional contributions.Non-concessional contributions are generally personal after-tax contributions.

The Better Super changes provide some great opportunities, particularly for those close to retirement.

For more information on the latest changes and reforms to super, visit the ATO website.