Superannuation Definition

Superannuation Definition

The definition of superannuation is a government regulated investment strategy designed to provide for Australians financially upon their retirement.

These are usually in the form of superannuation funds which are built up by a combination of compulsory and voluntary contributions from employers and individuals over their working lives and are preserved (locked away) for a very long time before they can be accessed with the exception of special circumstances.

A distinct advantage of these funds are that they are concessionally (lightly) taxed with the intention of encouraging increased contribution towards its growth while increasing the potential pay-out at the end of its preservation period (i.e. in most cases, retirement).

Due to the regularity by which the rules governing superannuation are modified and amended by the Australian Federal Government, it can sometimes be a complicated and confusing subject to fully comprehend if you want to get into its gritty details and definitions.

Superannuation and Pension

Basically, superannuation exists because the average age expectancy has increased while most households are also having fewer children.

Superannuation Definition
By extrapolating these trends over a number of years, one can expect that in a few decades, the ratio of working people to retirees will have drastically decreased.

What this means is that funding the aged pension via taxpayers will no longer be a feasible option. To do so would place an untenable strain on the Federal Budget which, at present, is already heavily burdened by pension requirements.

Compulsory Superannuation

Due to the fact that a lot of Australians are terrible savers (on average we save just 4% of our income), a good portion of contributions made towards superannuation has been made compulsory for employees by the Government.

A completely voluntary superannuation system would most likely lead to insufficient contributions made towards it and would defeat its whole purpose of providing individuals with a comfortable retirement while alleviating the burden on the Government for caring for the aged via taxation.

Based on the superannuation guarantee scheme which was introduced in July 1992, your employer must make compulsory superannuation contributions on your behalf. Exemptions from this rule may apply if you are:

  • over 70 years old
  • below 18 years old and work less than 30 hours a week on a part-time basis
  • performing private or domestic work less than 30 hours a week
  • a member of the Reserve Forces who receives income exempt from tax
  • paid less than $450 per month
  • already above the reasonable benefit limit and elect not to receive superannuation
  • working outside Australia as a non-resident or working for a non-resident company outside Australia
  • a foreign executive holding specific visas or entry permits

Recommended Reading
Manage your own super with DIY Self-Managed Superannuation Funds.
Minimise fees and enjoy high returns with Industry Super Funds.
Get tips on how to Choose the Right Super Fund.
Understand the various types of Superannuation Funds available.

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