Question:
Describe about the “Superannuation in Australia”.
In Australia, superannuation refers to accumulated funds arrangement made by people in Australia to provide them retirement income. This is encouraged by the Australian government and supported with other tax benefits. Australia’s superannuation system is ranked with number three in the world lagging behind by Netherlands and Denmark only (Copy of home (2016)). There is a minimum standard set by the government for contributions as well as for superannuation fund management for employees. Contributions have to be made by the employer for employees a part from the salary and wages provided to the employees.
Australian retirement 3 pillar system is (Australia’s three-pillar system 2016):
These elements are subject to change if:
Current superannuation scheme in Australia was launched in 1992 July according to which all employers have to contribute for retirement scheme of their employees. It was started with a percent of 3% of the wages of the employees, But currently it is 9% (APRA 2016).
It was first came in existence in 19th century in Australia. Superannuation was very common t use in 19th century which directly refers to the retirement benefits or we can say pension schemes. In most countries it is refereed as private pension which is known as superannuation by Australians. It is not very clear why pension is termed as superannuation in Australia but is different from what is provided by the private parties and what is provided by government as age pension. It could be stated as what the retirees get after a longer period of working life an employee’s gets in lump sum.
Firstly it was provided by bank of Australiasia in October 1842, which was available upto 1940s the benefit of superannuation was available only to males, public sector group employees of large companies. Employer provided a small amount of benefit only and that was also not very compulsory. After 1974, 32.2% of salary and wage earners were considered for superannuation out of which 40.8% were male and only 16.5% were females. At that time superannuation was provided in the form of defined benefit funds.
In order to make superannuation a universal approach, ACTU came in form and attached with the government and it was announced to pay 3% of wages and salaries of employees as superannuation by the employer to his/her employees. It changes many of lives of employees in Australia but not of all.
This submission was made by in accordance to some supporting arguments:
Superannuation funds were $2,046 billion at the year ending 2015 in December quarter which was slightly high from the last one (Superannuation Statistics 2016). It was nearly $1 billion in March quarter of 2015 which was just increased by 6.1% at December end of the year (Works, S. (2016). Total assets were $449 billion in December 2015 which was 14.3% more from the last year.
Feb 2016
Overview
Type of fund |
Total assets ($billion) |
No. of funds |
No. of accts (June 15) |
Corporate |
54 |
36 |
0.3 million |
Industry |
446 |
43 |
11.3 million |
Public sector |
354 |
38 |
3.5 million |
Retail |
541 |
148 |
13.8 million |
Funds with less than 5 members |
597 |
568,943 |
1.1 million |
Balance of statutory funds |
56 |
||
Total |
2,046 |
30.0 million |
Manner of investment |
$ billion |
Directly invested |
480 |
Placed with Investment Managers |
677 |
Invested in Life Office Statutory Funds |
195 |
Total assets |
1,352 |
Dec quarter 2015 |
$ million |
Employer DB contributions |
3,539 |
SG contributions |
13,858 |
Salary sacrifice |
2,009 |
Member contributions |
5,162 |
Net rollovers to SMSFs |
1,740 |
Lump sum benefits |
8,157 |
Pensions |
7,544 |
Contributions taxes |
2,469 |
Earnings tax |
986 |
Operating expenses |
1,609 |
Net earnings |
36,255 |
Net growth |
41,586 |
Asset class |
Amount ($billion) |
% |
Cash |
166 |
12 |
Australian fixed interest |
183 |
14 |
International fixed interest |
96 |
7 |
Australian listed shares |
317 |
24 |
Listed property |
45 |
3 |
Unlisted property |
71 |
5 |
International shares |
295 |
22 |
Infrastructure |
61 |
5 |
Hedge funds |
24 |
2 |
Unlisted equity |
62 |
5 |
Other |
31 |
2 |
Total |
1,352 |
100 |
Characteristis |
Amount($billion) |
% |
Cash |
37 |
8 |
Australian fixed interest |
51 |
11 |
International fixed interest |
27 |
6 |
Australian listed shares |
97 |
22 |
Listed property |
9 |
2 |
Unlisted property |
34 |
8 |
International shares |
115 |
26 |
Infrastructure |
32 |
7 |
Hedge funds |
0 |
0 |
Unlisted equity |
27 |
6 |
Other |
15 |
3 |
449 |
100 |
In Australia there are around 500 types of superannuation funds currently operating. 362 out of 500 have total asset of greater than $50 million. Funds are totalled of $2.05 trillion in March 2015(Ato.gov.au. 2012)
Superannuation fund assets
This fund offers a new type of account. This will replace the default accounts will super funds accounts. It can be one chosen by the employee or the employer. It offers
These funds are run by banks or some investment companies. Anyone can join retail funds and can have a various options to invest. These are usually of low but are offered in low to high at every range.
SMSFs come with self managing control on funds but with more responsibility as well as workload. This is suitable for people who have super skills to manage financial and legal terms (McIntyre, T.M. (2016). It is the largest of all funds with 99% of the total number of funds (RiceWarner 2014).
SMFs property investment
SMFs allow to purchase real estate in residential sector ( Ambachtsheer K., Capelle R., Lum H., (2006)
Individuals can withdraw superannuation fund when he fulfils all the conditions laid down by schedule 1 of superannuation industry regulation 1994(Journal of Applied Finance, Spring/Summer 2008.)
Importance of superannuation and expected Growth in superannuation assets
Australians are going to live a healthy and longer life that means you will need a big fund after your retirement. People cannot only rely upon pension schemes. In Australia if you are working under someone then your employer will contribute 9.5% of your salary a part from your salary to your superannuation guarantee fund, fund the one which is chosen by you or suggested by your employer or financer.
Expected growth in funds
Country is expecting a rapid growth in superannuation assets from now to 2035 in various sector corporate, self managed, public sector, industry, retail, and retail employer sponsored sectors (Choonara, J. (2009),).
Long term growth of Australia hinders on productivity performance. Key drivers are competition and innovation (OECD (2006). There are various gaps to the system.
Australia has faced global financial crisis in 2007. But Australia was the least escaped country all over the world. Australian banking sector was also very less affected. Rather there have been continuous fall in financial companies from market practices and investment funds. Again in 2009 market fall by 41% from the peak point of November 2007 creating huge losses for investors and pension fund sector (APRA 2007).
Australia was the second biggest issuer of pension securities and funds. Problems of investor’s protection arrangement and margin lending were mentioned in order to failure of the market. Many funding banks faced fall in goodwill as they were not sufficient to provide funding and not providing services.
There were many reasons of continuous financial crisis. Firstly the crisis was neglected by the economists. Secondly, there were many issues which remain unsolved among economists and political leaders (APRA 2009).
Setting clear objectives for the system of superannuation:
Government should focus to develop such system to strengthen the objectives of the superannuation guarantee scheme within the law of government in 2016(Treasury 2001).
By the end, government must intend to introduce a system which works efficiently and effectively with allocating new employees or staff to fund schemes.
Government should extend the choice option of fund to more employees even to those who cannot choose their option of superannuation funds due to some legislation rules.
Government should progress the retirement income of the employees and support the CIPR (comprehensive income products for retirement).
Government should agree practicable and cost effective fund schemes for superannuation of employees.
Financial advice:
Professional advisers will be developed by the legislation in 2016 by giving them adequate qualification, and professional training.
Financial advice:
References:
OECD (2006), Guidelines on Pension Fund Asset Management: Recommendation of the Council.
ABS.(2007). Employment arrangements, retirement and superannuation, Australia Apr to Jul 2007 (Re-Issue). (Cat. No.6361.0). Canberra, Australia: Australian Bureau of Statistics. .(Accessed: 20 May 2016)
ABS.(2009). Employment arrangements, retirement and superannuation, Australia Apr to Jul 2007 (Re-Issue). (Cat. No.6361.0). Canberra, Australia: Australian Bureau of Statistics(Accessed: 20 May 2016)
The Treasury.(2001). Towards higher retirement incomes for Australians: A history of the Australian retirement income system since Federation. Canberra, Australia: The Australian Government the Treasury(Accessed: 20 May 2016).
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