Funds deposited in a superannuation account will grow typically without any tax implications until retirement or withdrawal. These plans are usually either defined-benefit or defined-contribution plans.

Before 1976, superannuation arrangements had been in place for many years under industrial awards negotiated by the union movement between wage increases. In 1992, the Keating Labor government introduced a compulsory “Superannuation Guarantee” system as part of a major reform package addressing Australia’s retirement income policies. It was calculated that Australia, along with many other Western nations, would experience a major demographic shift in the coming decades, resulting in the anticipated increase in age pension payments placing an unaffordable strain on the Australian economy. The proposed solution was a “three pillars” approach to retirement income:

  • A safety net consisting of a means-tested Government age pension system
  • Private savings generated through compulsory contributions to superannuation
  • Voluntary savings through superannuation and other investments
    The change came about through a tripartite agreement between the government, employers and the trade unions. The trade unions agreed to forgo a national 3% pay increase which would be put into the new superannuation system for all employees in Australia. This was matched by employers contributions which were set to increase over time to a proposed 12%. Subsequent changes meant this has been capped at the lower employer rate of 9%.

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