We have what’s known as an ‘ageing population’, which is what happens when a country’s median age rises.
According to the Australian Bureau of Statistics’ (ABS) data, 14% of the Australian population, as at June 30, 2013, was over 65.
In the five years from June 30, 2008, Australia’s population grew 8.9%, but the over-65 sector grew by 19%.
As life expectancy and the ageing population increase, it will put renewed pressure on the entire pension system. Government policy, retirement ages and superannuation funds such as Virgin Super will all have important roles to play in the funding of Australian retirement lifestyles.
But where exactly did super in Australia come from? Has it been around long?
Superannuation in the Pre-1900s
Super in Oz has actually been around since before the turn of the 20th century. During the mid 1800s, a number of public service employees, as well as white collar businessmen, were provided retirement savings or pensions as part of their employee benefits. In fact, this predates Australia’s Aged Pension, which didn’t come about until the early 1900s.
It is estimated by the Australian government’s Treasury that less than 40 per cent of the population received these benefits until a century later.
Superannuation in the Early 1900s
Huge reform happened from 1900-2000, with the system we see today evolving practically from nothing.
The Aged Pension was introduced at the start of this century, though it was staggered across a few years. New South Wales had the first (in 1900), according to the Australian government, which equated to around £26 per year. Queensland and Victoria followed suit closely afterward. Almost a decade later, the Invalid and Old Age Pensions Act 1908 was passed, which officially commenced a year later. This introduced £26 annually to the whole country.
Before the Age Pension, anyone not working would need to self-fund their retirement, assuming that they were not one of the lucky few who had a pension provided by their employer.
Later, in 1915, a new act introduced income tax, while also making superannuation savings tax-free, and employer contributions tax-deductible.
An attempt to pass superannuation bills – in the form of the National Insurance (1928) and National Health and Pensions (1938) Bills – both failed, the latter of which due to World War II.
Superannuation Post 1950
The years between 1950 and 1985 saw a number of changes to the Aged Pension, but no introduction of private or guaranteed superannuation – yet. The Australian government’s timeline reports that a study by the ABS in 1974 revealed only 32 per cent of the workforce were covered by super at this point, and most of them were males.
According to an ABC News interview with reporter Peter Martin, there was unease during the early 1980s as wages were due to rise 3%. The Paul Keating Labour government wanted to “restrain inflation”, but still give employees the rise they wanted. To compromise, a deal was worked out where the 3% rise would occur, but it would be contributed from employers to superannuation, and the employee could not spend it. The money was contributed to newly established ‘industry funds’, which were funds owned and controlled by a board comprising equal numbers of employer and employee or union representative.
By 1988, 51.3% of employees were covered by super, according to the ABS. By 1990, the Australian government states this had risen to 64% coverage.
The start of the modern superannuation system
When 1991 rolled around, the Budget of that year introduced the Superannuation Guarantee (SG), a compulsory system of superannuation support for Australian employees, paid for by employers, which came into full effect a year later. The Australian Taxation Office states that the first year of this new Act boosted coverage to 80%.
Over the next decade, coverage rose to 91%, and the SG rate itself increased from 3% to 9% and rising more 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.
So there you have it – the brief history of how Australia went from having no official retirement savings framework to a strained Age Pension fund and then to having the second-best system in the world.
What are your retirement saving plans?