Recently the ATO issued a fact sheet on the superannuation guarantee to acknowledge the twentieth birthday of superannuation guarantee.
This is a significant anniversary for the nation, and worthy of reflection. In the history of superannuation in Australia, the introduction of superannuation guarantee represents the underpinnings of a national framework for funding retirement income. It is something close to the ATO's heart, as the ATO's genesis as the Land Tax Office in 1910 was to collect tax which would provide for old age and invalid pensions.
Governments in many countries, including Australia are faced with the financial and social challenges of an ageing population. Superannuation Guarantee has enabled Australia to develop a strong and substantial superannuation system to help address these future challenges.
The policy of superannuation for all Australians was a long time in gestation, but is now part of the essential character of our tax and super systems. Superannuation connects to and depends on our tax system for its foundations and strength. Among the concessions, benefits and incentives provided by the Commonwealth through the tax system, superannuation is the second largest expense.
Superannuation is now entering a new phase and on the birthday of super guarantee, it is useful and encouraging to reflect on what has been achieved to date.
From the mid-nineteenth century, occupational superannuation existed in Australia amongst white collar employees, but it was not until the 1970s that private superannuation became more widely available through its inclusion in industrial awards.
For much of its history, Superannuation covered only a minority of Australians. By 1983 it still only covered about 40% of the nation's workforce. Attempts in 1928, 1938 and 1976 to introduce a universal superannuation system all failed.
In 1985, amid an uneasy economic climate, the Government and the Australian Council of Trade Unions agreed to introduce productivity award superannuation, which allowed for part of the award system's wage increase to be a 3% superannuation contribution. By the late 1980s superannuation had extended to about two-thirds of the private sector. However, the low rate of contribution was not sufficient to substantially improve retirement incomes for the average paid worker.
In 1991, the Industrial Relations Commission's rejection of a further 3% increase to award superannuation led the Senate Select Committee on Superannuation in June that year, to inquire into 17 issues including taxation of superannuation, vesting of benefits, prudential controls, superannuation simplification, adequacy of public education and the rules governing employer contributions.2
On 20th August, 2011 the Government announced the introduction of SG in its Budget, stating that SG would provide:
- A major extension of superannuation coverage to employees not currently covered by superannuation
- An efficient method of encouraging employers to comply with their obligation to make contributions on behalf of their employees
- An orderly mechanism by which the level of employer superannuation support could be increased over time, consistent with the government's retirement income policy objectives and the economy's capacity to pay.
The Superannuation Guarantee Charge Act 1992 and Superannuation Guarantee (Administration) Act 1992 (SGAA) came into effect from 1 July 1992, mandating a minimum level of employer contributions, with a charge imposed for failures to meet that minimum, which is then distributed to employees' super funds. Administration of the super guarantee acts was entrusted to the ATO.
In the first year after the introduction of SG, 80% of employees were covered. By 1999 this had increased to the present coverage of 91% of employees, a significant shift in just 16 years since the 40% coverage of 1983. The compulsory minimum level of employer contributions began at 3% and had risen to the current 9% by 2002. Other changes continued to refine the super guarantee system. Highlights include:
- July 2005: Establishment of the Superannuation Holding Accounts to accept small SG contributions. From July 2006 the holding account has been limited to holding payments of shortfall SG amounts where a super fund for an employee cannot be found.
- July 2007: The maximum age for SG contributions was increased from 65 to 70 in recognition that more Australians were choosing to work past retirement age.
- Since 2002: Australia has entered into bilateral agreements with other countries to address double superannuation coverage. The ATO currently has agreements in place with 16 countries.
- July 2003: SG contributions moved from compulsory annual contributions to quarterly contributions, allowing earlier investment and protecting employee benefits in situations of employer insolvencies.
- July 2005: Choice of fund was introduced, allowing the majority of employees to nominate their own supper fund.
- Jan 2006: The introduction of the late payment offset allowed employers to offset late contributions against an SG charge liability in certain circumstances.
- July 2008: Ordinary time earnings became the standard earnings base for all calculations of SG contributions.
- July 2009: The former Workplace Relations Act 1996 was replaced by the Fairer Work Act 2009. Some superannuation aspects of the new legislation commenced from January 2010.
- July 2010: Introduction of the Small Business Clearing House administered by Medicare to assist small business employers meet their SG obligations.
As of March 2011 superannuation assets in Australia totalled $1.23 trillion, an increase from $230 billion in September 1995. This growth is predicted to continue to over $6 trillion by 2035. Of the $107 billion in total contributions made to super funds in the 2009-2010 financial year, $72 billion were employer contributions. In the same year over $60 billion in superannuation benefits were paid out from super funds as either pensions or lump sum amounts.
The corollary of mandated contributions is confidence in the superannuation system. The ATO helps to maintain high levels of trust and confidence in our super system through education of employers, and well targeted compliance assurance activity. The ATO investigates unpaid superannuation on behalf of employees (around 18,000 a year) who contact them when they believe their employers may not be meeting their SG obligations. The ATO focuses on employers and industries at high risk of not meeting their superannuation obligations, and since July1992, the ATO has raised over $4 billion in superannuation guarantee charge liabilities from employers not meeting their SG obligations. Approximately $2.5 billion has been collected and distributed to employee super accounts.
Further enhancements to the super system arise from key government reviews: the Australia's Future Tax System Review and the Super System Review, better known as the Cooper Review.
Following consideration of recommendations from both reviews, the Government, in its 2010 Budget announced significant changes to Australia's superannuation regime, primarily focused on the ability of each Australian to be able to accumulate adequate retirement savings.
A keystone of these changes is the proposed increase to the superannuation guarantee contribution rate from 9% to 12% by 1 July 2019. Raising the age limit from 70 to 75 years is another significant proposal that would take effect from 1 July 2013.
Further changes announced in this year's budget include:
- The greater use of tax file numbers to locate and match lost member accounts
- An extension of the director penalty regime to make directors personally liable for unpaid superannuation guarantee amounts, and
- From 1 July 2012, employers must report on employee payslips the amount of superannuation actually paid into their super accounts.
