Australian Retirement System : A General Overview

Superannuation is a tax effective form of long term saving and investment which is intended to provide an individual with a pension or lump sum on retirement. By allowing investment returns to be sheltered within a superannuation vehicle the Australian Government is seeking to defray future retirement costs by having individuals make their own retirement provisions rather than relying upon social welfare.

Australia’s superannuation rules are complex and while we have striven to have given as good a summary of the position as possible in these chapters it cannot cover all situations. We firmly suggest you pursue professional advice, either via an Exfin inquiry or other means, if you have specific issues regarding superannuation, or in relation to foreign pension transfers into Australia.

The Australian retirement system is relatively unusual in that members of retirement funds have far greater access to lump sums than in most countries. Hence, they have been referred to as superannuation funds rather than pension funds. Recent legislative changes are now encouraging benefits to be taken in the form of an income stream – but by providing incentives rather than legislation.

All Australian employers are currently required to contribute a minimum 9% of salary into a complying retirement fund for each of their employees. This is called the Superannuation Guarantee (SG) and the minimum contribution will increase gradually from 9% to 12% over the period to 2020.  The exceptions to this requirement are individuals outside of the 18 to 70 age range, those currently earning less than $450 per month and those who have “fully funded the maximum allowable non excessive benefits”. 

Major changes took effect in July 2007, which were amended somewhat in the Federal Budgets of 2009 and 2010, and they are summarised below:
 

• Superannuation benefits paid from a taxed fund either as a lump sum or as an income stream such as a pension, are tax free for people aged 60 and over
• Reasonable benefit limits (RBLs) were abolished
• Individuals were given more flexibility as to how and when to draw down thesuperannuation in retirement - there would be no forced payment of superannuation benefits
• Age-based restrictions limiting tax deductible superannuation contributions were replaced with a streamlined set of rules
• The self-employed became able to claim a full deduction for their superannuation contributions, as well as being eligible for the Government co-contribution for their personal post-tax contributions
• The ability to make deductible superannuation contributions was extended up to age 75, subject to a work test beyond age 65.

The Australian Government also announced a number of changes to Superannuation in the 2009 Federal Budget; they were as follows:

• a reduction in the concessional superannuation contributions cap from $50,000 to $25,000 (indexed) .  This was consequently adjusted in the 2010 Budget to allow people over 50 years of age, with an account balance of less than $500,000, a concessional contribution limit of $50,000 a year.
• a reduction in the transitional concessional contributions cap from $100,000 to $50,000 (not indexed) for those aged 50 years and over for 2009-10 to 2011-12 financial years. 
• the non-concessional cap remained at $150,000, equal to six times the concessional cap
• the three year non-concessional cap of $450,000 remained, but is applicable only to individuals who are 64 years of age or less on the first day of the financial year. 

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