Australian Superannuation : A General Introduction
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 on social welfare.
Australia’s superannuation rules have become increasingly complex and, while we have striven to have given as good a summary of the position as possible in these chapters, we cannot cover all circumstances. We strongly suggest that 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 superannuation funds currently have far greater access to lump sums, rather than for example annuity income streams, than individuals in most countries. Hence, they have been referred to as "superannuation" funds rather than "pension" funds.
Additionally, while many overseas retirement systems are built around allowing the tax free accumulation of pension funds during an individuals working life, and then taxing taxing them at normal marginal rates on withdrawal, the Australian system taxes contributions on entry and earnings within superannuation, but typically not on withdrawal after retirement.
All Australian employers are currently required to contribute a minimum 11% of salary (ordinary time earnings) into a complying superannuation fund for each of their employees. This is called the Superannuation Guarantee (SG) and the minimum contribution will increase gradually to 12% over the period to 2025/26 - see the chart below. Note that an Australian employer's obligations to make SG contributions can extend to expatriates in a few narrow situations.
Negotiations between the Government and Opposition allowed the announcement of some significant changes to the rules surrounding superannuation back in 2016. Generally, these changes reduced access to both concessional and non-concessional contributions, with the result that expats needed to give greater thought to how they continually manage their superannuation in Australia for best effect during their time overseas – rather than relying on the ability to make large, non-concessional contributions, to superannuation on their return to Australia. However, changes in relation to contributions post retirement made in 2022 added some welcome flexibility.
Unfortunately, Australian politicians seem unable to resist the temptation to continually tinker with superannuation, while hesitant to undertake a "root and branch" review of the system to ensure it remains relevant in a more constrained economic environment and with clear demographic challenges ahead. So, the only "sure thing" is that yet further changes in superannuation lie ahead and, to a degree, financial planning for expatriates needs to be undertaken with this in mind, and include some degree of flexibility.
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