According to the ABS, by 1988, 51.3% of employees were covered by Superannuation & by 1990, the Australian Government stated this had risen to 64%.
In the 1991 Federal Budget the Government introduced the Superannuation Guarantee (SG), a compulsory system of Superannuation or Australian employees, paid for by employers, which came into full effect in 1992. The ATO reported that the first year of this new Act , it boosted coverage to 80% of employees. Over the next decade, coverage of employees in Australia covered by Superannuation rose to 91%, and the SG rate itself increased from 3% to 9% and rising recently to 9.5%. In 2005, two other systems were put in place that we still see today:
- the ability to choose your own retirement fund and
- the ability to ‘transition to retirement’, where a person can contribute a larger portion of their salary to super and replace their salary income with a drawdown from the pension scheme.
The establishment of a compulsory Superannuation in Australia was a response to many financial challenges posed everywhere in the west by an expanding aged population & in essence the Government introduced Superannuation in Australia to force all workers to save for their retirement would relieve the pressure on Australia’s age pension.
Some say the reasons for the introduction of the Superannuation Guarantee by the “Keating Labor Government” in 1991 were political as well as economic. With wages due to go up 3% that year and Keating wanting to restrain inflation. Some point to that he also wanted to give workers the wage rise, so he and Bill Kelty, the head of the ACTU, came to a deal that employers will have to give the workers 3%, they just won’t be able to spend it & so that was the deal, that all awards had to give employees 3% of their salary paid not as salary but into superannuation funds.
Since the introduction of the SG, Governments on both sides of Federal Politics have introduced significant changes to the system. Employees now can chose the fund they’d like to manage their superannuation savings and set up a self-managed fund (SMSF).
In July 2013, compulsory contributions rose from 9% of salary to 9.25% of salary. In July 2014 the rate climbed to 9.5%pa.
As is currently stands, employers are not required to make employer contributions for employees earning less than $450/month, employees aged under 18 and working less than 30 hours / week and employees over 70 years of age. If however employees are earning $450/ month before tax or working more than 30 hours per week full-time, part-time or casual, the employer is required to pay superannuation regardless of whether the person is under 18. Furthermore, if employees aged over 70 years pass the work test and work more than 40 hours in a 30-day period, the employer can still pay contributions. They are also required to complete one per tax year. Employer contributions are required to be paid to a fund at least every three months.
Most recently, the Super Guarantee rate was supposed to increase on 1 July 2014 to 9.5% and to 10% from 1 July 2018 & then increase by 0.5% each year until it reached 12% on 1 July 2022.
The 2014 Federal Budget deferred the proposed rate increase to 10.0% for 3 years with the SG rate now to remain at 9.5% for 7 years until 30 June 2021, and then increase by 0.5% each following year until the SG reached 12%, on 1 July 2025. Superannuation contributions are invested over the period of the employees’ working life and the sum of compulsory and voluntary contributions, plus earnings, less taxes and fees are paid to the person when they choose to retire. The sum most people receive is predominantly made up of compulsory employer contributions.
Special rules apply in relation to employers providing “defined benefit” arrangements. There are less common traditional employer funds where benefits are determined by a formula usually based on final average salary and length of service. Essentially, instead of minimum contributions, employers need to provide a minimum level of benefit.