Superannuation

In theory, this shouldn’t be a topic we need to discuss. We shouldn’t have to think about superannuation.

Because THE theory is that it’s something that happens, almost without our knowing.

Apparently, we can’t save unless it’s compulsory to do so. Because humans exhibit myopic behavior, the government legislates saving to prevent short-term overconsumption.

So, in comes superannuation, an obligatory fund which our employers contribute to over our years of service. Essentially, they put money away from our paychecks for us to use when we cannot work anymore. Because if they just gave it all to us, we’d spend it, not save it.

And that makes sense…in theory.

Superannuation should be the preferred savings vehicle for working Australians, as contributions and earnings attract a 15% tax rate — that’s lower than the lowest marginal income tax rate.

It’s the perfect way to save…in theory.

The Reality of Superannuation

This is the plan.

The Superannuation Guarantee (SG) rate will remain at 9.5% until 2021, and then gradually increase to 12% by 2025.

So, under the Liberal government, the projected increase has slowed down, delaying the process entirely for years.

We’re supposed to see this as a good thing, because it means more spending money in our pockets from every paycheck.

But there’s an obvious downside to this…

The Future of Australian Superannuation

There has been talk of raising the age of retirement to 70, and possibly even as high as 75.

The argument is that people who retire at 60 or 65 — up to 80% of them, in fact — don’t have sufficient super funds to support them, and are applying for the aged pension.

This is supported by reports showing persons receiving weekly superannuation income get, on average, around $500. Not nearly enough to live on.

So, the theory is, if we work longer, we’ll contribute to super for longer. And then, we WILL have enough in our super to support us.

It could work, hypothetically. Provided there are enough jobs available…

Keep an Eye Out on Super

Will I ever even get my money? Will the retirement age just keep rising?

Compulsory superannuation contribution means whether you like it or not, you have money in superannuation funds.

As most of us Australians depend on our super savings to live a comfortable retirement, in Markets & Money we keep a close eye on the rules surrounding superannuation.

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