Aussie super among the world’s best

 

New research shows Aussie super among the world’s best
Australia’s super system has once again been rated among the very best in the world — but there’s still room for improvement.
Australia’s superannuation system is one of the world’s best, according to the Melbourne Mercer Global Pension Index1.
Mercer gave Australia a rating of 79.9% overall — up from 77.8% in 2013 and second only to Denmark on 82.4%. Australia was rated better than 23 other countries, including the Netherlands, Finland, Switzerland, Sweden and Canada.
Australia scored 79.9% overall — up from 77.8% in 2013 and second only Denmark on 82.4%.
Dividing the best from the rest
The report starts by identifying the three critical factors that divide the world’s best super systems from the others. They are:
1. Adequacy — is it enough? This measure focuses on the retirement income each country provides to its citizens, including super payments, pensions, tax support and other government benefits.
2. Sustainability — is it designed to last? This measure considers whether the system is likely to remain affordable in the future, analysing factors like the total assets in the system, the country’s demographics and the level of government debt.
3. Integrity — does it keep our money safe? This measure assesses whether members can be confident that their money is safe, analysing government regulations, investor protections and governance rules, along with the overall cost of the system to investors.
Once Mercer has given every country in the survey a rating out of 100 for each measure, it calculates the overall score, with a weighting of 40% for Adequacy, 35% for Sustainability and 25% for Integrity.
How Australia fared
Australia’s super system received a B+ rating — just below Denmark’s A rating but ahead of the other 23 countries covered. The Netherlands was the only other country to make it into the B+ category.
Our system scored first in the world for super Adequacy (81.2%) and third for Integrity (87.7%), although our Sustainability score was slightly lower at 73%, in fourth place. Overall, the report found that our system has a sound structure and a range of positive features, but also that there is still some room for improvement.
Room to grow
They included:
• Raising the retirement age.
• Lifting the age at which we can access the pension, in line with our increasing life expectancy.
• Actively encouraging older workers to stay in the workforce longer.
• But while those recommendations are remarkably similar to recent government announcements, other recent moves may be less positive.
The report specifically states that Australia’s score increased this year “primarily due to the increase in the legislated minimum contribution rate from 9% to 12% and the higher minimum pension”. With the government moving to delay further increases in the super guarantee rate and to limit pension increases by changing the indexation method, it will be interesting to see whether we can maintain or improve our ranking in the future.
Keep your super on track
A financial adviser can help you take advantage of the best features of Australia’s super system while overcoming the challenges of a rising retirement and pension age. The sooner you seek advice, the sooner you can create a practical plan for the future.
1 Melbourne Mercer Global Pension Index, 2014
Why salary sacrifice just became even better
If you use salary sacrifice to save for the future, then it’s time to check you’re making the most of the government’s new, higher contribution caps.
What’s changed?
On 1 July 2014, the government lifted the concessional contributions caps that limit the amount you can contribute to your super from your pre-tax salary. The new caps for the 2014–15 financial year are:
• $35,000 a year for people aged 50 or more from 1 July 2014
• $30,000 a year for everyone else.
These caps apply to both your employer’s compulsory super guarantee contributions and to any voluntary salary sacrifice contributions you ask them to make. So, if your cap is $30,000 and your employer makes $9,000 in super guarantee contributions a year, you can now boost your super with extra salary sacrifice contributions of up to $21,000.
If you're aged between 50 and 59, you can now put an extra $10,000 into super from your pre-tax salary.
What does it mean for you?
If you use salary sacrifice, you already know how easy and tax-effective it can be. By asking your employer to pay some of your pre-tax salary directly into your super account, you can build your super faster while paying just 15% tax on your extra contributions.
The new concessional contribution caps make it possible to put even more into super each year while taking advantage of that low 15% tax rate. For example, if you’re aged between 50 and 59, you can now put an extra $10,000 into super from your pre-tax salary — and if you pay the top marginal tax rate, that could save you $3,200 in tax compared to an after-tax investment.1
How much difference could that make? According to ASIC’s MoneySmart Retirement Planner, a 50 year old man who earns $100,000 a year and has $120,000 in super could boost their income in retirement by almost $8,000 a year if they salary sacrifice up to the current cap.2 Even if you’re close to retirement, extra super contributions now could make all the difference in the years to come.
Get the right advice
A financial adviser can help you make the most of your super options, with a personalised plan to put you on track to a retirement worth looking forward to. The sooner you start planning, the sooner you can get your money moving.
1.Based on a 45% marginal tax rate and 2% Medicare Levy.
2.Source: MoneySmart Retirement Planner at www.moneysmart.gov.au
Super guarantee increases frozen: what it means for you
As part of a deal to repeal the mining tax, the Government has frozen super guarantee increases until 2021, costing Australians around $128bn in lost super savings.1
What’s changing?
The super guarantee contributions that most Australian workers receive from their employers were set to increase by half a percent a year from 2014, up to 12% of each worker’s annual salary by 2019.
But on 2 September 2014, the Federal Government announced that, as a result of its deal to scrap the Minerals Resource Rent Tax, those increases will be delayed for seven years2. Instead, super guarantee contributions will be frozen at the current rate of 9.5% of salary until 1 July 2021. After that, they will gradually increase to reach the target of 12% per annum in 2025.
By taking action to boost your super now, you can offset the effects of the changes and make a positive difference to your financial wellbeing in retirement.
What does it mean for you?
Put simply, the changes mean less super for millions of Australians — around $128 billion less by 2025, according the Financial Services Council1. As a result, many will struggle to save enough for a comfortable lifestyle in retirement.
According to the Association of Super Funds of Australia, even with a super guarantee rate of 12% per annum, a typical worker earning $50,000 a year might expect to save around $244,000 over 30 years — just a little over half the $430,000 lump sum required for a comfortable retirement lifestyle, assuming a part pension 3. Now Australians can expect to save even less.
Here are some examples of the potential impact of the changes:
How the super guarantee changes could affect you
Source: Colonial First State.
This projection compares previously legislated super guarantee rates with those that passed parliament on 2 September 2014.
Assumptions: Investment earnings: 7% • Salary indexation: 4% pa • CPI inflation: 3%. •All income and contributions taxed at 15% • All balances in today’s dollars
What can you do about it?
By taking action to boost your super now, you can offset the effects of the changes and make a positive difference to your financial wellbeing in retirement. For example, according to ASIC’s MoneySmart Superannuation Calculator, the 45 year old in the table above can increase their super balance on retirement by more than $56,000, simply by using salary sacrifice to boost their annual contributions by another 3% of salary each year, or around $212 a month.4
A financial planner can help you work out the best way to increase your super savings. Remember — the sooner you act, the better off you're likely to be.
1.Financial Services Council media release, ‘Super guarantee delay will mean $128 billion less in savings for working Australians’, 2 September 2014.
2.Media Release, Senator Mathias Cormann and JB Hockey, 2 September 2014.
3.Association of Super Funds of Australia, ASFA Retirement Standard, June 2014.
4.Source: MoneySmart Super Calculator at www.moneysmart.gov.au
This may contain general advice.  General advice is prepared without taking into account your objectives, financial situation or needs, and because of this, you should, before acting on the general advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs and if the advice relates to the acquisition of a particular financial product for which a Product Disclosure Statement (PDS) is available, you should obtain the PDS relating to the particular product and consider it before making any decision whether to acquire the product.