Superannuation or, Super as it is more commonly known, is money set aside over your lifetime to provide for your retirement.
If you are new to super it may all seem a little confusing. "How much do you contribute?", "how does it affect your wages?", "when can you access your super?", are just a few questions that may be running through your mind. We have produce a number of dedicated articles to support your understanding of super and how it affects your income tax calculations. We suggest you read the remainder of this introduction then access the supporting information in the more detailed superannuation guides below.
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For most people, superannuation begins when you start work and your employer starts paying a portion of your salary or wages into a super fund for you – these payments are known as super guarantee contributions or concessional (pre-tax) contributions.
Super funds invest your money in many things, such as shares, property and managed funds. They may also offer different types of insurance, such as income protection.
Superannuation in Australia is partly compulsory, and is further encouraged by the government and supported with tax benefits. The government has set minimum standards for contributions for employees as well as for the management of superannuation funds. It is compulsory for employers to make superannuation contributions for their employees on top of the employees' wages and salaries. The 2employer contribution rate has been 9.5% since 1 July 2014, and is planned to increase gradually from 2021 to 12% in 2025. People are also encouraged to supplement compulsory superannuation contributions with voluntary contributions, including diverting their wages or salary income into superannuation contributions under so-called salary sacrifice arrangements.
An individual can withdraw funds out of a superannuation fund when the person meets one of the conditions of release contained in Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.
Though the main purpose of the superannuation scheme in Australia has been and continues to be to create an environment in which people can put funds aside to provide an income in retirement, the tax incentives available have also come to be used, especially by wealthy individuals, as a tax reduction strategy. As a consequence the government has set limits on the amounts that can be brought into the scheme at concessional rates with a number of "caps". Amounts above those caps can still be brought into the superannuation scheme but are generally taxed at the top marginal tax rate.
For many years until 1976, superannuation arrangements that had been in place were set under industrial awards negotiated by the union movement.
A change to superannuation arrangements came about through a tripartite agreement between the government, employers and the trade unions. In the prices and income accords of 1983, the trade unions agreed to forgo a national 3% pay increase, which would be put into the new superannuation system for all employees in Australia. This was matched by employer’s contributions. Since its introduction, employers have been required to make compulsory contributions to superannuation on behalf of most of their employees. This contribution was originally set at 3% of the employees' income, and has been gradually increased (See the lastest Superannuation rates here). Though there is general widespread support for compulsory superannuation today, at the time of its introduction it was met with strong resistance by small business groups who were fearful of the burden associated with its implementation and its on-going costs.
In 1992 the compulsory employer contribution scheme became part of a wider reform package addressing Australia's retirement income dilemma. It had been demonstrated that Australia, along with many other Western nations, would experience a major demographic shift in the coming decades, of the aging of the population, and it was claimed (without evidence) that this would result in increased age pension payments that would place an unaffordable strain on the Australian economy. The proposed solution was a "three pillars" approach to retirement income: