If I was a gambling man I’d take a punt you may have missed it, but 20 August 2011 marked the twentieth anniversary of the Superannuation Guarantee.
Alright, its birthday is not quite as memorable as your Mum’s, but in the 20 years that employer-paid super has been around, with plenty of tinkering along the way, it has given a growing number of Australians a decent chance of retiring with a healthy pool of savings.
In the early 1980s, only 40 per cent of Australian workers had the backing of super. In August 1991, following several attempts to kick-start a broadbased system of super, the federal government announced the Superannuation Guarantee.
Back then employers contributed the equivalent of 3% of their workers’ base salary to their super fund. These days that figure is 9%, and the government has plans to raise employer contributions to 12% by mid-2019.
In 1997 the maximum age for super guarantee contributions was raised from 65 to 70 as more Australians started to work past the official retirement age. This age limit is earmarked to increase to 75 by July 2013.
And in mid-2005, ‘choice of fund’ was introduced – a significant change that allows most workers the freedom to select their preferred fund for their employer’s contributions.
There have been many other changes to super – and chances are we’ll see more in the future. But all the time, our collective super balance has been steadily rising.
By March 2011 Australia’s national super savings totaled $1.23 trillion – up from $230 billion in 1995. Government projections show that by 2035, our pool of super savings will climb to $6 trillion.
It’s impressive stuff. But for many workers, the key issue is how superannuation has performed as an investment.
Around 80 per cent of Australians have their super in a ‘balanced’ fund. It’s an investment choice that sees your money spread across a range of assets, though as much as 70% of the fund’s portfolio may be held in shares.
This is noteworthy because the last two decades have seen some remarkably solid action on stock markets, both up and down. Yet despite this, analysis by SuperRatings shows that over the last 20 years, ‘balanced’ super funds have earned an average annual return of 7.1%.
Averages never tell the full picture, and certainly the returns on super have fluctuated – in some cases wildly, between years.
In 1997, for instance, balanced funds earned an average return of 18%. In 2000 super notched up gains of 11.2%, and throughout the mid-2000s double-digit returns were the order of the day. Then in 2008 and 2009, the global financial crisis hit and returns plunged to -6.4% and -12.9% respectively. Over the last two years, annual returns have been closer to 9%.
The current financial year has so far dished up some dreadful results on share markets. It’s likely that over the coming weeks and months we could hear more unsettling news of volatile investment markets taking a toll on our retirement savings.
But looking back over the last 20 years, it’s clear that super delivers healthy gains for investors, together with tremendous tax concessions, over the long term – and super is a very long term investment. More importantly, it’s money that can make your retirement more comfortable and fulfilling. And that’s the key achievement of our superannuation system.