Why do we celebrate Labour Day? The birth of superannuation
02 October 2019
For the majority of working Australians, the idea that your employer contributes to your superannuation is a simple fact of life.
However, it hasn't always been so. Indeed, the superannuation guarantee, the model under which our current super system operates, was only introduced in the early 1990s. And the road to securing this vital pension provision began a long time before that.
Today, we're going to delve into the history of super and labour rights in Australia, as well as show you how to make the most of your employer contributions.
Australian workers in the 19th century paved the way for modern super schemes.
Labour Day: The groundwork for super
Our annual Labour Day holiday is enjoyed across all Australian states and territories but, other than time away from the office, do we really know what it's all about?
The very first Labour Day parade occurred on 21 April 1856 in Melbourne, with other areas of the country quickly following suit. The reason behind it? The government agreeing to the creation of an eight-hour working day. Following years of hard campaigning by labourers, the tipping point came when stonemasons from the University of Melbourne downed their tools and marched on Parliament to push for change.
Before this time, workers in Australia endured incredibly long shifts, with some working as much as 12 hours a day, 6 days a week. While the five day week that we enjoy today didn't become the norm until 1948, the worker's movement made those in power listen to industrial demands for better conditions.
What we celebrate on Labour Day, is the bravery and determination of Australian workers as well as their success in achieving lasting change for employees across the country.
So, why was it so long before super was introduced?
Even with the lives of Australian workers improving, the current super system was a long time in the making. Below is a quick rundown of the key moments - it's worth noting that before these changes, all Australians had to fund their own retirements using whatever money they'd put away during their careers.
- Means tested age pension - Around the turn of the 20th century, a means tested age pension was introduced in NSW, and quickly adopted by other states.
- The Invalid and Old Age Pensions Act 1908 - This set the pension rates and eligibility criteria for pensions.
- Income Tax Assessment Act 1915 - The next important piece of legislation enabled employers to deduct taxes for superannuation contributions made for their employees, and also exempted super fund earnings from tax.
- Australian Council of Trade Unions (ACTU) officials set up a building industry superannuation fund - Following decades of frustration in which various governments failed to introduce a national insurance scheme for retirees, the ACTU fund was the first of its kind. Similar initiatives soon followed.
- A universal superannuation - Not long after, ACTU and Labour combined to demand a 3% super contribution from employers. By 1990, over 60% of all employees were covered by this scheme.
- The super guarantee - In 1991, the super guarantee we still use today came into being - a mandatory system in which employers and employees both contribute to provide a comfortable retirement for workers.
- Increasing contributions - The original 3% employer contribution rate was upped to 9% in 2002, and the 9.5% we have today in 2014.
Before the introduction of pensions and super, Australians had to fund their post work years entirely on their own.
Who is eligible for the super guarantee today?
Under the super guarantee, if you're over 18 years old, and receive $450 or more in before tax pay per calendar month, your employer should be contributing to your nominated super fund at a rate of 9.5% of your ordinary time earnings. For those under 18, there is an additional criterion that you must work over 30 hours a week as well as earning $450 dollars a month.
As long as you fulfill these requirements, you're entitled to super regardless of whether:
- You work full time, part time or casually.
- You are only a temporary Australian resident.
- You are working while receiving an annuity or super pension (this includes transition-to-retirement schemes).
- You are working in a family business.
- You are the director of a company.
If you're still unsure whether you're eligible for super from your employer, the Australian Tax Office (ATO) has a useful tool that takes you through a number of questions to establish whether you qualify.
Golden rules for boosting your super
With the right to employer super now entrenched in Australia, it's up to you to make the most of this vital retirement planning tool. Here are some golden rules for growing your super:
1. Consolidate, consolidate, consolidate
According to the ATO, as of 30 June 2019, 39% of the 15.6 million Australians with super accounts have more than one. A common reason for this is because, unless you tell your employer where to pay their contributions, they will put the money into the default account for their business. When you change jobs, the same process occurs and you now have two funds. There are two main problems with this:
- Additional fees - As funds charge fees for looking after your money, having multiple accounts will mean multiple sets of fees.
- Lost super - If you use employers' default accounts, it's easy to lose super when you move on.
By consolidating your funds in one place, you can avoid additional fees and reduce the chance of losing super. However, be wary of how moving funds impacts your insurance.
If you’re an LGS member, you can easily consolidate your other super accounts into your LGS account in just a few clicks.
2. Review your fund
You should regularly review your fund to see if it's still the best option for you. Things to look for may include:
- your fund’s long-term performance.
- how your fees compare to similar products.
- whether you want to swap to a different approach to investing your super.
There are a number of different ways you can boost your super.
3. Investigate additional contributions
There are various ways you can look to add to your employer's contributions if you're interested in making your super balance even healthier. Among the most common are:
- Salary sacrifice arrangements - Here, you arrange with your employer for a proportion of your pre-tax salary to go straight into your super. This has a number of important tax benefits.
- Spouse contributions - You can top up your spouse's super (and vice versa) as long as you meet certain criteria.
- Government co-contributions - Designed for low to middle income earners, government co-contributions mean that the Federal Government pays 50 cents for every $1 you contribute after tax. Again, there are requirements you must meet, and the co-contributions are capped at $500 a year.
If you're interested in finding out more about how super works, the ways it can benefit you or what you can do to grow your fund, get in touch with LGS today. We've been a part of Australia's superannuation story for over 20 years, and are committed to providing sustainable, long term returns to our members.
You might be interested in...
A young person's guide to managing money
3 December 2018
Knowing where to start with managing your finances can be difficult for first-time earners. Here are a few tips to help get your accounts in order.
How does your super compare?
19 November 2018
Most of us start contributing to our super when we begin working, but do you know how your balance compares to other people your age?
Slow and steady wins
5 November 2018
Salary sacrificing into your super fund is a great way to build your savings for retirement. So what are the pros and cons and how can you get started?