Train when you’re young, work hard for the next few decades and leave the workforce at your designated retirement age.
This is the traditional march towards retirement for most Australians, and thanks to superannuation, every working Aussie since 1992 should have some retirement savings to call upon when they get there.
While our superannuation system has been ranked as the second-best in the world, how is it helping the country?
The Age Pension
When you reach the designated retirement age and provided you are an Australian resident, the value of various assets you own can have an effect on your eligibility for an Age Pension. This is a system that has been around since 1908, when the Invalid and Old Age Pensions Act was passed.
These days it provides a benefit of up to $782.20 per fortnight for singles, or couples up to $1,179.20 from the government.
The Age Pension is a state-funded initiative to support our elderly, and comes out of general revenue supplied by the taxpayer. According to MoneySmart, around 65 per cent of retired Aussies use this for their main source of income.
This isn’t so good for the economy, however, as The Treasury states we have an ageing population – meaning more elderly people are on the way. The more people who require funding from the government, the less the economy could have to support other areas of the economy such as infrastructure, healthcare and business incentives.
To help solve this dilemma, superannuation was introduced to reduce our reliance on the Age Pension.
Superannuation reduces reliance on the Age Pension
Super providers, such as Virgin Super, provide investment and portfolio management services that aim to grow their members’ superannuation savings over time. The larger the superannuation pot at retirement, the less reliance on the government pension.
According to a report (titled ‘Superannuation and the economy, June 2015’) by the Association of Superannuation Funds of Australia (ASFA), though our system is still relatively “immature” on the global scale, it is already benefiting the country.
It outlines that there is a positive impact showing in our Budget. While super provides individuals with tax concessions – and therefore gives the government less tax revenue – the reduced cost of the Age Pension offsets these concessions.
Superannuation impacts on the business and investment landscape
Australia has long been a country that imports capital to assist with domestic investment, according to the ASFA report. This, unfortunately, leaves many of our business owners at risk of other nations’ economies harming ours.
One of the more effective ways to protect a country against external economic shocks is to have strong domestic savings and investments. Thankfully, according to both ASFA and Dr Martin Parkinson, who spoke on the matter in 2012, the national Australian savings rate is up, and those savings are heavily invested in Australian businesses and assets.
“Superannuation’s large pool of stable and unleveraged superannuation assets [worth just over $2 trillion as of March this year, according to ASFA] contributes to financial stability by adding depth and liquidity to financial markets; providing an alternative source of finance for other sectors; and acting as an important buffer against external shocks,” said Dr Parkinson.
So you see, it’s not just important to contribute to your super for your own comfort, but for the entire nation’s as well.
Are you saving for retirement through a super fund?