Tax and Super Australia

A super 30 years

NATASHA PANAGIS is head of superannuation at Tax and Super Australia. Thirty years on, we celebrate that 1 July 2022 marked the 30-year anniversary of the superannuation guarantee (SG) system. Although the SG only became compulsory on 1 July 1992 and then at just 3 per cent to 5 per cent of salary/wages, it was the start of something special. At that time, it covered 72 per cent of workers and employers were required to make contributions into a superannuation fund for their employees. The introduction of the SG was the start of ensuring many working Australians have retirement savings on which they can live once they stop working, without relying solely on the age pension.

It took a decade for the SG rise to 9 per cent in 2002 and on its 30th anniversary, it increased to 10.5 per cent, with legislated plans to climb to 12 per cent by 2025. The gradual increase in the SG over the years has led to immense growth in the superannuation sector. In March 1992, before the introduction of the SG, the total value of superannuation assets was estimated to be $148 billion. Fast forward 30 years and the value of superannuation assets has grown to about $3.4 trillion as at 31 March 2022. To give context, assets held in the Australian superannuation system today exceed the entire market capitalisation of all companies listed on the Australian Securities Exchange, which at June 2022 was around $2.3 trillion.

Superannuation has seen many changes over the past 30 years, from the introduction of SMSFs in 1999, to the introduction of transition-to-retirement pensions and choice of fund rules in 2005, the Simpler Super changes in 2006/07, to more recent changes including the 2021 Your Future, Your Super reforms, the retirement income covenant from 1 July 2022, and the superannuation contribution changes beginning in the 2023 income year, just to name a few.

The superannuation system is not perfect and could do more with further improvements, but it is worthwhile reflecting on what has been achieved so far and asking whether the system is working to allow Australians to support themselves in retirement. What I think we can all agree on though is that compulsory superannuation does help Australians build financial security in their retirement.

Looking to the future, the challenge is to ensure the superannuation system remains sustainable and works for everyone, without reintroducing uncertainty into the wider system which may then impact confidence and ultimately deter people from investing in super in the future.

To this end, one key challenge is the gender gap. As women take time out of the workforce to care for family and often earn less than their male counterparts, it’s no surprise they retire with much less superannuation than men. The statistics tell us the superannuation gender gap can be anywhere from 22 per cent to 35 per cent in the years approaching retirement age.

Pleasingly, the Labor government has hinted at a number of SG measures that may help close this gender gap. At the 2019 election, Labor committed to paying SG on 18 weeks of paid parental leave (PPL) offered by the government, a move which would help close the gender gap and improve retirement savings for women who take time away from work to have children. Since then, the new government has revisited this proposal with Treasurer Jim Chalmers stating at a media conference in July that, at some point, Labor would like to find a way to responsibly fund paying the SG on PPL provided it is affordable for the government and business alike.

We could also potentially see the SG rate increase to 15 per cent in the future. The ALP’s 2021 National Platform paper affirmed its commitment to the legislated SG increase to 12 per cent and once that has been achieved, it aims to set out a pathway to increasing it to 15 per cent. In that same paper, Labor also stated it would like to ensure the earnings of all workers, including contractors, would attract SG.

We will have to wait and see whether these proposals make their way into law.

In summary, although many pre-retirees who are nearing retirement have not had a complete career of compulsory SG contributions from their employers, the real winners will be those workers who retire having received these monies their entire working lives. Let’s hope the next 30 years will see a stronger and more sustainable superannuation sector.