By Daniel Archibald | CFA
Another chapter was added to the superannuation story in 2017. Following on from the plans laid out in the 2016 budget, parliament finally passed the Government's reform package, with most of the changes to the system to be effective of 1 July 2017. Below is a quick look back at the history of Australia's retirement system:
- Pre-1970's, superannuation was only really offered to public servants, defence force and higher paid employees
- In 1986, 3% compulsory super payments begin for unionised employees
- In 1992, 3% compulsory super guarantee begins for all employees, with set annual increases to rate
- In 2002, the super guarantee rate reached its current level of 9%
- In 2005, choice of fund becomes mandatory, allowing most employees the choice on which fund to hold their super and make contributions
- In 2007, "simpler" super was introduced to help make managing super and understanding the many super laws a little bit easier. Tax-free income streams introduced
- In 2013, the super guarantee rate rises to 9.25%, and to 9.5% in 2014. The rate is slated to increase from 2021-2025 from 9.5% to 12%.
- In 2017, "fairer" super saw reform meant to reduce tax concessions for wealthier Australians. This included limits on contributions into super and caps on transfers into the tax-free income stream environment.
The pendulum took 10 years to swing back from the raft of generous concessions implemented into the system in 2007. And though it can take a long time for legislative changes to be considered and enforced, there can be quite large ramifications for investors and tax payers when Governments alter the direction of tax and welfare policy.
Change is inevitable, but planning for change can be difficult. Strategies that made sense in one regime, might not be so effective in another. And as future legislative changes might likely be unpredictable, tax and wealth strategies and strategists need to remain alert and flexible.