Superannuation is a savings system designed to provide financially for Australians once in 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 super savings:
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 superannuation accounts that Australians can choose for their super.
Recent history
From as early as the 1950s, various industries had super 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 super 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 law enabled many Australian employees to choose which fund their employer's future superannuation guarantee contributions are paid into. Choice of Fund enables you to:
- retain your current fund when you start working for a new employer
- change to a lower-fee and/or better service super fund
- change to a better performing super fund.
Better Super - 2007
Better Super is the name given to super reforms introduced on 1 July 2007. It's also sometimes referred to as 'Simpler Super'.
The aim of Better Super was to simplify super savings and its tax treatment to provide Australians with more flexibility in retirement.
Some of the key points of the Better Super changes included:
- tax free super income and lump sums from age 60 for members of taxed super funds (Health Super is part of a taxed super fund).
- a limit (initially $50,000 but later reduced to $25,000) on the amount of concessionally taxed super 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 (initially $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 provided some great opportunities, particularly for those close to retirement.
For more information on the latest changes and reforms to super, visit the ATO website.