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4102.0 - Australian Social Trends, 1995  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/06/1995   
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Contents >> Income >> Sources of Income: Superannuation: who will pay for the future?

Sources of Income: Superannuation: who will pay for the future?

Despite increasing superannuation coverage among Australians, most people do not contribute enough to provide them with an adequate retirement income.

Most Australians currently rely on the age pension to support them during their retirement. The retired population is increasing in size. The Australian population aged 65 and over is expected to nearly double by 2041 (see Australian Social Trends 1994, Projections of the aged population). In addition, people are living longer in retirement as life expectancies continue to increase (see Life expectancy trends). Because of these two factors there are concerns about the ability of the pension system to provide adequate future financial support for retired people.

In response the government has introduced incentives to encourage people to take greater responsibility in providing income for their retirement. Currently, most people hold their assets in the form of housing and consumer durables. These do not readily provide a retirement income1. Informing people about their superannuation requirements, and introducing compulsory superannuation and the superannuation guarantee charge (SGC), are two strategies that the government has implemented to increase national savings.

The aim is to eventually make retired people independent of the age pension. Although the age pension will still be available, it will be a safety net complementing superannuation, which will be the main source of retirement income2.


Superannuation and employment

People have superannuation coverage if they belong to a superannuation scheme towards which either they or their employer/business are making contributions. A superannuation scheme is any fund, association or organisation set up for the purpose of providing financial cover for members when they retire from full-time work. Overseas superannuation funds are excluded.

Employed people are those aged 15 and over who worked during the reference week for pay, profit, commission, payment in kind or without pay in a family business, or who had a job but were not at work.

Employees are employed people who worked for an employer for wages or salary or in their own business, either with or without employees, if that business was a limited liability company.


Increasing coverage
Superannuation coverage of the population is increasing. Between 1988 and 1993, the proportion of people aged 15-74 with superannuation coverage increased from 34% to 51%. The increase was more marked for women than for men.

The proportion of employed people covered by superannuation increased from 51% to 80%. The superannuation coverage of people employed part-time increased more rapidly than that of people employed full-time. In 1988, people employed full-time were three times more likely to have superannuation coverage than people employed part-time, 58% compared to 19%. By 1993 the difference was considerably smaller, 86% compared to 61%. Superannuation coverage of people who were unemployed or not in the labour force was very low in both 1988 and 1993, although a slight increase occurred during the period.

SUPERANNUATION COVERAGE(a)

1988
1993


Labour force status
Men
Women
Persons
Men
Women
Persons
%
%
%
%
%
%

Employed
61.2
36.5
51.3
82.1
78.2
80.5
    Full-time
63.5
46.8
58.3
85.4
87.0
85.9
    Part-time
20.4
19.0
19.3
45.4
65.5
61.0
Unemployed
3.2
2.2*
2.7
4.6
3.6
4.2
Not in the labour force
1.8
1.5
1.6
2.1
2.5
2.4
Total
47.5
19.6
33.6
59.5
42.2
50.8

(a) People aged 15-74 years.

Source: Superannuation Survey


Coverage of employed people
In 1993 employees were more than twice as likely to have superannuation coverage as self-employed people, 89% compared to 36%. One reason is that self-employed people may be out of the scope of compulsory superannuation legislation.

Among those employed part-time, women had much higher coverage than men, 65% compared to 45%. Among people employed full-time, women also had a slightly higher rate of superannuation coverage than men, 87% compared to 85%. However, overall, employed men had higher rates of superannuation coverage than women. This is because a large proportion of women (42%) but only a small proportion of men (8%) work part-time.

In 1993 the superannuation coverage of employed people was highest among those aged 25-34 and 35-44 (84%). This was the case for both men and women. Coverage was lowest among people aged 65-74, followed by those aged 15-24. This may be due to higher proportions of part-time workers in these age groups. These were also the only two age groups where women had higher rates of superannuation coverage than men.

SUPERANNUATION COVERAGE OF EMPLOYED PEOPLE, 1993



Source: Superannuation Survey


Industry and coverage
In 1993 rates of superannuation coverage varied widely according to industry of employment. People employed in industries that had high public sector involvement had higher rates of superannuation coverage than those employed in other industries. People employed in electricity, gas and water, and communication had the highest rates of superannuation coverage, 98%, followed by public administration and defence, 96%.

People working in the agriculture, forestry, fishing and hunting industry had the lowest superannuation coverage (49%). This reflects the high proportion of self-employed people in this industry. People who worked in the recreation, personal and other services industry also had low rates of superannuation coverage (65%). This is likely to be due to the high numbers of part-time workers in this industry.

SUPERANNUATION COVERAGE BY INDUSTRY, 1993

Men
Women
Persons
Industry
%
%
%

Electricity, gas & water
98.1
96.4
97.9
Communication
98.8
95.6
97.8
Public administration & defence
97.8
92.3
95.5
Mining
93.9
81.6
92.7
Manufacturing
91.9
83.6
89.7
Community services
88.4
87.6
87.9
Finance, property & business services
83.9
84.8
84.4
Transport and storage
83.8
77.4
82.3
Wholesale & retail trade
79.1
69.7
75.1
Construction
73.2
55.9
70.7
Recreation, personal & other services
64.9
64.3
64.5
Agriculture, forestry, fishing & hunting
53.0
39.4
48.9
Total
82.1
78.2
80.5

Source: Superannuation Survey


The Superannuation Guarantee Charge

The government introduced the Superannuation Guarantee Charge (SGC) in 1992 as part of its retirement income policy. The main aim of the policy in the long term is to make most Australians independent of the age pension.

The SGC is a taxation charge on employers who do not satisfy the prescribed minimum standard of employer contributions to superannuation. In 1992, the prescribed minimum standard contribution under the SGC Bill was 3%. By 2002-03, the SGC Bill requires employers to contribute at least 9% of employees' earnings to a superannuation scheme. The dollar value of the SGC is equivalent to the cost of the prescribed minimum standard. However, paying the charge is less attractive than meeting the standard because the charge is non-deductible for income tax purposes.


Superannuation contributions
In 1993, 4 in 5 employed Australians had superannuation coverage. However, this does not reflect whether adequate contributions were being made. The Fitzgerald report2 recommends that people contribute around 18% of their earnings to be completely independent from the age pension during retirement. The Superannuation Guarantee Charge requires that employers contribute a minimum of 3% of their employees' earnings to a superannuation scheme, however some employers may contribute more than 3%. It is the responsibility of the individual to meet the gap between the SGC and the recommended contribution.

Overall, contributions being made by employees in Australia in 1993 were not sufficient for people to be independent of the age pension. An employed person would need to contribute at least 15% of their earnings in conjunction with the SGC contribution of 3% made by their employer to be independent of the age pension in retirement. In 1993, just over 1% of all employees with superannuation coverage made personal contributions of 15% of their earnings or more.

In 1993, only half of all employees covered by a superannuation scheme made personal contributions to that scheme. Of these people, one-quarter contributed less than 3% of their earnings. Only 3% contributed 15% or more of their earnings to their superannuation scheme.

Full-time employees were more likely to make personal contributions to their superannuation scheme than part-time employees, 55% compared to 25%. However, among those employees who made personal contributions, part-time employees contributed more of their earnings than full-time employees. 9% of these part-time employees contributed 15% or more of their earnings to a superannuation scheme compared to 2% of full-time employees.

Of all employees who had superannuation coverage, men were more likely to make personal contributions than women, 56% compared to 41%. However, among these people, women were slightly more likely to contribute 15% or more of their earnings than men, 3% compared to 2%. This may be due to higher proportions of women working part-time and these women being able to make larger contributions because they are financially supported by their partner3.

Whether employees make personal contributions also varies with age. In 1993, 59% of employees aged 45-54 made personal contributions to their superannuation scheme compared to 27% of those aged 15-24. People are more likely to make personal contributions later in life as disposable income increases and financial priorities change from family and home to retirement2.

PERSONAL CONTRIBUTIONS OF EMPLOYEES AGED 15-74 YEARS WITH SUPERANNUATION COVERAGE, 1993

Men
Women
All employees



Personal superannuation
Full-time worker
Part-time worker
Full-time worker
Part-time worker
Full-time worker
Part-time worker
Total
contributions
%
%
%
%
%
%
%

Under 3%
25.8
27.7
24.8
21.2
25.5
22.2
25.2
3% to under 5%
32.3
21.6
32.6
19.7
32.4
19.9
31.3
5% to under 10%
35.3
26.9
37.1
40.2
35.8
38.2
36.0
10% to under 15%
4.4
8.6
4.2
10.5
4.3
10.2
4.8
15% & over
2.2
15.2
1.3
8.4
1.9
9.4
2.6
Total
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Percent of people with coverage who made personal contributions

57.7
25.4
48.9
25.4
54.7
25.4
49.7

Source: Superannuation Survey


Main income source in retirement
Before the SGC, superannuation schemes have had limited coverage and adequacy. In 1992, 43% of people who had retired from full-time work aged 45 and over reported that they had superannuation cover at retirement, but only 11% stated that superannuation had been their main source of income at retirement. 44% stated that government benefits were their main source of income at retirement (see Australian Social Trends 1994, Retirement income).

However, there are indications that this situation is changing. In 1993, 48% of employees aged 45-74 who made personal contributions to a superannuation scheme expected superannuation to be their main source of income in retirement. 24% of these people expected some form of pension to be their main source of income in retirement.

Intended use of lump sum payment
In 1992, 61% of people aged 45 and over who intended to retire and were in a superannuation scheme expected to receive a lump sum payment at retirement. Over half (55%) of these people intended to invest their payment to produce genuine income returns. 24% had not decided what they would do with their payment.

Of the remaining people, the majority intended to use their lump sum to pay off their home, pay for home improvements or buy a new home. This was followed by pay for a holiday, clear outstanding debts or buy or pay off a car/vehicle. Using a lump sum payment in this way may allow people to live on a smaller income during their retirement. However, it is of concern to policy makers because the aim of superannuation is to save for retirement. If people use their superannuation payments to pay off debts, they may not be able to provide themselves with retirement income, and they may become dependent on the age pension as their main source of retirement income.


Endnotes
1 Gallagher, P. (1993) Retirement Income Modelling & Policy Development in Australia Conference Paper prepared for the Economic Modelling Bureau of Australia Conference on the Asia-Pacific Economy.

2 Fitzgerald, V.W. (1993) National Saving: A report to the Treasurer.

3 Welling, M. (1993) Superfunds.



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