Australia’s superannuation system has evolved into a wealth generation juggernaut, with the industry collectively managing approximately $3.5 trillion in assets on behalf of over 21 million Australians. But the industry has grown in prominence from humble beginnings.
The modern super concept was born out of an employer-driven incentives regime, which developed over the early half of the 20th century. Up until the mid-1980s, super benefits were only extended to public service employees and limited white-collar professionals employed by large corporations.
According to data from the Australian Prudential Regulation Authority – which among other responsibilities, is tasked with developing and overseeing the regulatory framework for the super sector – super assets totalled $41.1 billion in 1987, with just 32 per cent of private sector employees covered. But by this point, reforms in the industrial relations space had already begun to broaden the super base.
The 1986 National Wage Case decision of the Australian Conciliation and Arbitration Commission included super within its ‘wage fixing principles”. The decision propelled a push by trade union movements to expand the provision of super as part of an agreement between the Hawke Labor government and the Australian Council of Trade Unions.
Off the back of this momentum, the share of private sector employees with a super arrangement more than doubled in just four years, rising to 68 per cent by 1991.
But 1992 would mark a new dawn for Australia’s super system, with the Keating Labor government introducing the Superannuation Guarantee (SG), which mandated a 3 per cent contribution rate (4 per cent for employers with an annual payroll exceeding $1 million) from employers on behalf of their employees. The mandatory contribution rate would gradually increase over time, and currently sits at 11 per cent.
After introducing the SG bill into parliament, then treasurer John Dawkins said the new model, which future retirees would “value very highly”, bridged the wealth divide.
“When this government took office in 1983, most people would look to the age pension as their main source of retirement income,” he said.
“Superannuation was the preserve of a few, mainly the wealthy, and a substantial proportion of concessionally taxed superannuation savings was dissipated well before retirement.
“…These reforms have moved superannuation from being a concessionally taxed source of windfall gains for high income earners towards being a genuine retirement savings vehicle for most Australians.”
Then treasurer Dawkins then on to describe the SG as “another major step forward” in the development of retirement incomes policy, which would “lay the foundation for income security and higher standards of living in retirement”.
Just a year after the SG reforms were introduced, Australia’s three-pillar retirement system – super, the age pension, and voluntary retirement savings – was lauded by the World Bank. Australia’s system was endorsed as the world’s best practice for the provision of retirement income.
By design, super assets subsequently snowballed, rising to $245.3 billion by 1996, up almost 67 per cent from $148 billion in 1992.
But the rapid growth of the super industry attracted regulatory scrutiny, given the industry’s growing impact on the broader stability of the financial system. The 1997 Wallis Financial System Inquiry recommended prudential regulations be imposed on the banking, insurance, and super sectors by a new regulator – APRA.
“Prudential regulation should be imposed on institutions licensed to conduct the general business of deposit taking from the public, or offering capital backed life products, general insurance products or superannuation investments,” the inquiry proposed.
The inquiry recommended super regulation be designed to ensure compliance with retirement income objectives, and an “appropriate mechanism” be put in place to resolve compliance failures.
Additionally, the landmark inquiry advocated for greater choice, recommending a legal framework to empower members to choose their super fund.
“Employees should be provided with a choice of fund, subject to any constraints necessary to address concerns about administrative costs and fund liquidity.,” the inquiry proposed.
“Where superannuation benefits vest in a member, that member should have the right to transfer the amounts to any complying fund.
“Where a member chooses to exercise that right, payments should be transferred to the chosen fund as soon as practicable, subject to controls necessary to maintain orderly management for the benefit of all fund members.”
These provisions, however, would not be formally introduced until 2005 via the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill – jointly administered by APRA, the ATO and ASIC.
Together, these developments paved the way for today’s globally recognised super system, which includes 144 APRA-regulated funds and approximately 612,000 SMSFs – independent funds set up by individuals or small businesses to provide members with greater investment flexibility.
But the super system continues to evolve in line with ever-changing member needs and requirements, with policymakers currently exploring a raft of new measures to enhance the super proposition.
