The Surprising Thing Australia Is A World Leader At
Australia has always been a global leader in retirement outcomes for our citizens right back to 1908 when the Commonwealth Parliament passed the (at the time) highly innovative and leading Invalid and Old-Age Pensions Act.
It was based on the previous New South Wales legislation that would pay citizens over the age of 60 years 10 shillings a week for singles and 15 shillings a week for married couples provided their income did not exceed 50 pounds per year. Unfortunately, this legislation would pay every qualifying individual "unless Aboriginal, Alien or Asiatic".
At the time of 1908 legislation the average man could expect to live until 55 and the average woman to 59, meaning that the overall cost of the scheme was not significant.
Today we have a rapidly aging population with the average life expectancy increasing to just under 84 years old.
Over the next 80 years, there would be creation of retirement schemes, adjustments to the age pension but the real game changer was the creation of compulsory superannuation starting from the 1st of July 1992 and a minimum 3% contribution rate.
By 1993 the World Bank was calling the Australian 3 Pillar system of retirement income as the greatest in the world!
Over the next 30 years, the superannuation system, rules and regulations would undergo massive changes until we have the system that we have today.
Our system encourages regular contributions into your retirement savings (employs some handy tax breaks along the way, although there a myriad of rules that need to be followed), reduces strain on the public purse and enables a world leading array of investment choices.
It might surprise you to learn that our nation of a mere 25 million has the 4th largest amount of retirement savings in world, estimated to be over $3.5 Trillion.
There's an old saying that in life you can't avoid death and taxes, however our superannuation system is a great way to reduce the second one.
It might surprise you to learn that as of July 1st 2021 you are able to contribute up to $1,700,000 into the retirement account of your superannuation fund and have it be tax free on future earnings and income. However, please be aware that there are some complex rules around this involving contributions and you potentially have to pay tax on these funds depending on the taxation structures used within your superannuation fund.
This is why it is generally recommended by most advisors if you are looking to plan for the long term or are wanting to boost your retirement outcomes to take the most advantage you can out of filling up your superannuation bucket.
One of the things that I believe is most misunderstood rumours about superannuation is that your fund just invests in "super". This could not be further from the truth.
Your superannuation fund will offer a range of investment choices and invest across a wide array of investments to grow your retirement savings.
Now your choice of fund will have an impact upon your investment choices and internal rules regarding maximum exposure limits for positions. For example, the ever popular Self Managed Superannuation Fund (SMSF) will enable you to not just invest in vanilla assets such as direct shares and bonds but provided your trust deed enables it you can invest in assets including direct property, art, wine, collectibles, physical gold etc. The rules regarding SMSF's are complex and the penalties for breaking them can be severe.
At it's heart your superannuation is merely your long term investment account that enables you to consistently invest, hold a diverse array of assets and reduce your tax along the way.