An Introduction to Superannuation
In essence, the term "superannuation" or just simply "super", is the universally used Australian term for a pension or retirement fund. There is some suggestion that the use of the term "superannuation" flags that access to lump sum payments are more a feature of retirement schemes in Australia than appear to be the case elsewhere in the world, and there is some truth to that view.
Superannuation funds have existed in Australia for many years, certainly dating from the late 19th century, but until the mid-1980's they were generally limited to the professional, white collar employees of large corporations and public servants. During the 1980's superannuation began to become a feature of many industrial awards, but coverage still remained far from widespread.
In 1992 the Federal Government introduced the Superannuation Guarantee (SG) scheme which required employers, with very few exceptions, to provide a minimum level of superannuation support each financial year for their employees. Funds within superannuation could not be accessed until preservation age, then at least age 55, and in the years that followed the SG contribution rate has increased steadily, if irregularly, until it currently stands at 9.5%. See the chart below to see how the SG has increased over the last 20 years and how the rate is due to increase over time to 12% in 2025.
From the introduction of the SG, Australia's approach to providing retirement incomes has been said to rest on three pillars, comprising:
- A means tested and publicly funded Age Pension;
- Compulsory private savings through the SG payments; and
- Voluntary private savings, within and outside Super, supported by taxation concessions and direct government payments for low income earners.
Apart from the SG, individuals have been able to make additional contributions to Superannuation - both before tax and after tax - subject to certain caps. We address this in the section, Contributing to Super.