Australian Superannuation

Australian Superannuation 1
AUSTRALIAN SUPERANNUATION
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Australian Superannuation 2
Table of Contents
Superannuation................................................................................................................................2
Introduction......................................................................................................................................2
Types of Benefits scheme............................................................................................................4
Types of benefits plans....................................................................................................................5
Defined Benefit Plan....................................................................................................................5
Investment Choice Plan...............................................................................................................5
Time value of money and Superannuation......................................................................................7
Bibliography....................................................................................................................................9
Introduction
Most governments encourage the working class to save during their working or productive
periods for their retirement or unproductive years. The savings, in most cases, grow from the

Australian Superannuation 3
point they are made until retirement or when they are withdrawn. The savings for retirement are
referred to as superannuation. In savings plans, employers can contribute to saving plans for their
employees on top of the remuneration paid. An employee can separately contribute or contribute
together with the employer. Incentives to save more are always given to make employees
sacrifice more and save. The main aim of saving is to ensure an individual can still earn upon
retirement, which enables them to afford basic human needs like healthcare and basic
commodities like food. Superannuation is, therefore, the money saved during the working years
for retirement years.
Superannuation
Superannuation is a company’s pension plan that is set specifically to benefit its employees upon
retirement. Typically, funds deposited to superannuation account grow continuously until they
are withdrawn or retirement of the beneficiary. To encourage savings for retirement, most
governments remove tax implications on superannuation in order to encourage saving. In some
countries, superannuation contributions are compulsory while in others, it’s voluntary (Agnew,
Bateman, and Thorp, 2012). The main reason for superannuation is to ensure a stream of income
after n individual retires. The contributions are made by employers or/and employees with some
countries fixing the percentage rate of earnings to be saved. In some cases, individuals
complement the compulsory contributions with voluntary contributions. Savings in
superannuation are not drawn able unless the beneficiary retires or is diagnosed with a terminal
illness.
In Australia, the superannuation was an arrangement by union movement that set up the
superannuation under industrial rewards in 1976. The change was later brought in 1983 by
agreement by the government and trade unions for the trade unions to forego 3% of increment in

Australian Superannuation 4
pay. The foregone increment was to be put in a newly set up super annunciation for all
Australian employees (Bateman, 2015). The introduction, despite having great support, currently
was resisted by small businesses that were afraid of the burden that came with implementation.
Later on, in 1992, the Keating Labour government introduced a compulsory scheme in its
reforms to a retirement package. This was supported to protect the Australian Economy from an
unaffordable strain on pension payments (Ingles, and Stewart, 2017). The proposal was in three
parts for superannuation contributions by the employer, which were compulsory and branded
superannuation guarantee (SG). The second part is contributions to other investments and
superannuation funds. Lastly, a safety net designed for cases when the contributions were
insufficient was maintained by the government. The Keating Labour government intended that
compulsory employee contribution be introduced in 1997 to 1998 at 1% of their salary then
increasing to 2% 1998 to 1999 and 3% in 1999-2000 (Gruen, and Soding, 2011). The Howard
Liberal Government canceled the employee contribution in 1996 upon taking office; however,
the employer contribution grew to 9% in 2002-2003.
As of 2008, employers were required to contribute 9.5% of employees’ ordinary time earnings to
superannuation (SG). This consisted of the wages and salaries received as well as commissions
and allowance excluding overtime payments. The contribution, however, does not apply for
employees under 18 years and those whose pre-tax income is less than $450 per month or are in
full-time work for 30 hours a week, part-time or casual (Gallery, Gallery, Brown, Furneaux, and
Palm, 2011). In this case, the employer is obliged to contribute to such employees. The employer
pays for employees above 70 years who work for more than 40 hours 30-day period. The
contributions by the employer are made at least a quarterly basis. To encourage contribution, the
employer contribution is tax exempt for the employee and subject to 15% in the super fund tax.