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Sources of Income: Employee superannuation
The introduction of compulsory employer superannuation contributions means that most employees in Australia have superannuation. In 2000, the majority of employees aged 15-64 years had superannuation (91%) compared with just over half (55%) in 1988.4
In general, the small proportion of employees who have no superannuation are exempt from compulsory employer contributions. These people tend to be young, earning a low income, or both. In 2000, employees aged 15-19 years and those earning between $1 and $19,999 per year had relatively low superannuation coverage (49% and 71% respectively).
PROPORTION OF EMPLOYEES AGED 15-64 YEARS WITH SUPERANNUATION COVERAGE
Source: Superannuation, Australia, 1988, 1991, 1993 and 1995 (ABS cat. no. 6319.0) and ABS 2000 Survey of Employment Arrangements and Superannuation.
Personal superannuation contributions
In addition to employer contributions, employees can make personal superannuation contributions. Personal contributions are voluntary in most industries, although employees of the Commonwealth Public Service for example, are obliged to make contributions to their superannuation. In 2000, one-third of all employees aged 15-64 years made personal superannuation contributions.
The proportion of people making personal contributions was higher for older employees than younger employees. It ranged from 7% of those aged 15-19 years to 46% of those aged 45-54 years, falling slightly to 42% of employees aged 55-64 years.
The proportion of employees making personal contributions also varied with income. Employees on low incomes (earning between $1 and $19,999 per year) were less likely to make personal contributions than those on higher incomes. That said, employees on the highest incomes were not the most likely to make personal contributions. The proportion of employees making personal contributions peaked at 54% for those earning between $60,000 and $79,999 per year, dropping to 44% for those earning $100,000 or more. This may relate to employees on higher incomes having other financial investments to supplement their superannuation in retirement.
The most common reason employees gave for not making personal contributions to their superannuation (provided by 38% of employees who did not make personal contributions) was the cost of contributing - they could not afford it. The second most common reason was that they had not bothered, not thought about it or were not interested (18%). About 7% of employees said that they had employer contributions but were not currently eligible to make personal contributions (some superannuation funds have waiting periods before new employees are eligible to make personal contributions). For 6% of employees not making personal contributions, the reason given was that they held other investments.
The value of superannuation contributions
Compulsory employer contributions are a proportion of earnings (7% in 2000) and therefore, the higher an employee's earnings the higher their employer's contribution. However, earnings and age are often closely related, so employer contributions tend to increase with age. In 2000, employer contributions were higher for employees aged 25-34 years than for employees aged 15-24 years (a median of $41 per week compared with $27). However, employer contributions were similar for employees aged 25-64 years.
MAIN REASONS GIVEN BY EMPLOYEES AGED 15-64 YEARS FOR NOT MAKING PERSONAL CONTRIBUTIONS - 2000
As opposed to employer contributions, personal contributions are usually voluntary and so vary according to individual differences. In 2000, older employees made larger personal contributions than younger employees, with contributions made by employees aged 55-64 years being the highest (median contribution of $45 per week).
Personal contributions tended to be lower than employer contributions for employees under the age of 45 years. In contrast, employees aged 45 years and over made higher personal contributions than their employer contributions. This may be associated with higher income and increasing motivation and capacity for employees approaching retirement to save than for younger employees.
MEDIAN VALUE OF EMPLOYEE WEEKLY SUPERANNUATION CONTRIBUTIONS - 2000
(a) For employees who have been receiving employer contributions for two years or more.
(b) For employees making personal contributions for two years or more.
Source: ABS 2000 Survey of Employment Arrangements and Superannuation.
The amount of superannuation held is closely related to the value of contributions made to superannuation over time, and therefore will increase with age. Even people who are not working often have substantial amounts held in superannuation funds as a result of contributions made over time and the compounding nature of superannuation.
In 2000, the median total superannuation balance for employees aged 15-64 years with superannuation was $10,200. The median balance for male employees was more than double that of female employees ($14,800 compared with $7,000). The difference between the superannuation balances of male and female employees increased with age to the point where male employees of retirement age (55-64 years) had more than twice the amount of superannuation of female employees ($44,700 compared with $19,800). Women leaving work, or working part-time, to care for children are likely to be a contributing factor to this pattern.
MEDIAN SUPERANNUATION BALANCE FOR EMPLOYEES WITH SUPERANNUATION - 2000
Source: ABS 2000 Survey of Employment Arrangements and Superannuation.
The close association between age, income and the choice to make personal superannuation contributions is reflected in superannuation balances. Employees on higher incomes tended to have higher superannuation balances in 2000, as did those employees making personal contributions. The median superannuation balance for employees earning between $1 and $19,999 per year was $1,800 compared with $55,700 for employees earning $100,000 or more. However, it is likely that the majority of employees on lower incomes were young with only a few years to accrue superannuation, while the majority of employees on higher incomes were older and had accrued their superannuation over a longer working period. In a similar way, employees making personal contributions to their superannuation had accrued almost six times the amount of superannuation of employees who received only employer superannuation contributions ($35,200 and $6,000 respectively).
SUPERANNUATION BALANCES OF EMPLOYEES AGED 15-64 YEARS WITH SUPERANNUATION - 2000
Factors affecting the ability to accrue superannuation
The link between superannuation savings, employment and income level means that many people may not accrue enough superannuation savings over the course of their working life to last them through their retirement. Factors such as the number of hours people work, the continuity of their employment, income level and their retirement age all impact on the amount of superannuation saved. Factors which limit these savings tend to affect women more than men, as men tend to have a stronger attachment to the labour force than women, and are more likely to work full-time.
In 2000, 77% of men aged 15-64 years were working compared with 62% of women of the same age. Approximately two-thirds of men aged 15-64 years were working full-time compared with one-third of women. Reflecting this, the average weekly total earnings for men in this age group was $560 compared with $299 for women.
As employer superannuation contributions are a proportion of employee earnings, and female employees tend to earn less than male employees, women generally receive smaller employer contributions. They also have less personal income to contribute to superannuation than men resulting in lower superannuation savings overall. Together with women’s generally younger retirement age and longer life expectancy, women may need to accrue more superannuation savings than men to maintain a similar standard of living throughout their longer retirement years.
That said, on the whole people who live in couple households accumulate assets together and have access to their combined benefits. In addition, recent legislative changes mean that superannuation is treated as an asset during divorce and is split accordingly.7
SELECTED INDICATORS RELATING TO SUPERANNUATION SAVINGS FOR PEOPLE AGED 15-64 YEARS - 2000
(b) Includes those who were not working.
Source: ABS 2000 Labour Force Survey; ABS 1999 Income Survey; Retirement and Retirement Intentions, Australia, 1997 (ABS cat. no. 6238.0); Deaths, Australia, 2000 (ABS cat. no. 3302.0).
1 Fraser, B. 2001, Conference on Superannuation, September 2001 - from the Canberra Times 7 September 2001.
2 Australian Bureau of Statistics, 1999-2000 Survey of Income and Housing Costs.
3 Australian Taxation Office (ATO) 2000, Superannuation Guarantee: How to understand and meet your Superannuation Guarantee obligations, ATO, Canberra.
4 The source for 2000 data in this comparison was the ABS 2000 Survey of Employment Arrangements and Superannuation while for 1988, data came from Australian Bureau of Statistics 1989, Superannuation, Australia, cat. no. 6319.0, Australian Government Printing Service, Canberra.
5 Harris, P. 2001, Looking back, looking forward: Australian pension and superannuation policy, Just Policy: a journal of Australian social policy, 22, pp. 3-13.
6 Centrelink 2001, How do I qualify for an age pension?, <URL:http://www.centrelink.gov.au/ internet/internet.nsf/payments/qual_how_ agepens.htm> (accessed 31 October 2001).
7 Family Law Legislation Amendment (Superannuation) Act 2001, No. 61, 2001.