Thirty years of compulsory super: How has it evolved and benefitted older Australians

National Seniors collaborated with investment management firm Challenger Limited on this survey and Head of Retirement Income Research at Challenger, Aaron Minney, says that compulsory superannuation has been a “major success” in preparing Australians for retirement.

Australia’s retirement income system is considered to be one of the best in the world, however, people do find the system complex to navigate according to Chief Executive Officer (CEO) and Director of Research at National Seniors, Professor John McCallum.

“Older Australians told us in the survey that the compulsory super system had enabled them to enjoy a comfortable retirement. It is truly a ‘guarantee’ for a better later life,” says Professor McCallum.

So how has super benefited older people, how has it evolved over the years and in what ways can it be improved?

Super provides financial security

National Seniors found through its survey that 75 percent of retirees were satisfied with their financial security due to superannuation and that their financial security increased as they aged.

Superannuation was also considered the top retirement income source for retirees, with 70 percent of survey participants saying it was their biggest source of income in retirement.

Around 47 percent of men and 39 percent of women reported that the current super system allowed them to live comfortably in retirement.

Additionally, 82 percent of women and 88 percent of men have savings ready for their retirement.

National Seniors also found that home ownership was an important part of feeling secure in retirement, with around 85 percent of retiree participants indicating they own their home outright (no mortgage).

“Comfort in retirement is higher among those who own their home compared to retirees who don’t. At older ages, the security of the home was more important than high savings levels in achieving comfort,” says Mr Minney.

How has super changed

In 1909, retirement income strategies began developing when the Age Pension was introduced.

Six years later, legislation was passed that allowed those who had savings for retirement to have a tax-free account that would also allow contributions from employers to be tax-deductible.

By 1974, around 32 percent of workers had a super fund organised, but it predominately was only used by men.

In the mid-1980s, former Prime Minister Bob Hawke sought a three percent superannuation contribution from employers rather than advocate for wage rises. By the 1990s, 65 percent of working people had superannuation in place.

The super guarantee (SG) came into effect in 1992, increasing the number of people who had a super fund further. The purpose of the measure was to make superannuation universal for all Australians and create a stronger retirement income system.

Over the last 30 years, there have been increases to the rates of superannuation, as well as changes to legislation to better protect Australian workers and their retirement nest egg.

Super is evolving

Super has been evolving over the years to better protect and grow the savings of those with money put away for retirement.

The ‘retirement income covenant’ came into effect this year, which places more requirements around transparency on providers of super funds.

For instance, your super provider will need to provide regular reviews and meet a number of objectives to give their customers the best retirement financial outcomes possible.

Super providers are also being tested for performance by the Federal Government, in a bid to improve transparency for retirees and to call out underperforming super funds.

Other changes that came into effect include a ‘downsizer contribution’ which allows you to put up to $300,000 into your retirement super nest egg from the sale of your home.

Retirees can also put up to $110,000 into their super every year up until they turn 75, assisting you to boost your superannuation balance before you retire. You can learn more about improving your super in our article, ‘Making the most of your superannuation‘.

Ways to improve our super system

One big finding in the super report from National Seniors was that retirees and pre-retirees need better access to financial advice.

Additionally, there needs to be tools available that can display the complexity of retirement life, including the intersection between the retirement income system and people’s circumstances in retirement, like housing, health, aged care and employment.

Mr Minney adds, “Super funds need to have a strategy for managing the financial risks facing retirees and help them maximise their income in retirement.”

The disparity between the retirement income of men and women also needs to be addressed.

“On just about every score on superannuation, women trail men,” says Professor McCallum.

“More men enjoy a comfortable retirement from super, and more women than men have super balances so low they are reliant on the Age Pension.”

Another change necessary for the super system to improve is the mindset of retirees. Many retirees are reluctant to utilise more of the funds in their super to improve their lifestyle.

Mr Minney says retirees need to use their super for what it was intended, to spend their savings and enjoy their retirement, rather than hoard their own nest egg.

Professor McCallum agreed, saying, “Retirees increasingly need to understand that their retirement savings are not so much a nest egg, but a means of achieving the best standard of living possible during their retirement years.”

To view the full report, head to the National Seniors website.