4102.0 - Australian Social Trends, 2002

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 09/05/2002

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Contents >> Income and Expenditure >> Sources of Income: Employee superannuation

Sources of Income: Employee superannuation

In 2000, 91% of employees aged 15-64 years had superannuation, compared with 55% in 1988.

Australians today are living longer and retiring earlier than those of previous generations. They are also looking to lead full and active lives in retirement.¹ As a result, many people will require more income in retirement than their parents or grandparents.

The age pension is currently the primary source of income for the majority of retired people in Australia. In 1999-2000, 78% of people aged 65 years and over who were not in the labour force relied on a government pension, while around 8% relied on superannuation.² Property investments were the primary source of income for 12% of people aged 65 years and over and not in the labour force.

The first of the 'baby boomers' (those people born between 1946 and 1965) will reach 65 years of age in 2011 and in 30 years time the population aged 65 years and over is projected to more than double its present size. Given these demographic changes and Australians' retirement aspirations, there have been concerns about Australia's reliance on a 'pay as you go' approach to funding retirement.

Australian governments have introduced a number of policies to address this issue. For example, the Superannuation Guarantee Charge (SGC) was introduced in 1992, with the aim of ensuring that employees would accrue enough superannuation over the course of their working life to provide them with a retirement income. In 2000, employees made up a large proportion of jobholders (86%).

Information on superannuation
Most of the statistics presented in this article are from the ABS Survey of Employment Arrangements and Superannuation (SEAS), conducted in mid-2000. The survey collected information about superannuation provisions of people aged 15-69 years.

Superannuation refers to a long-term savings arrangement which operates primarily to provide income for retirement.

Employer or business contribution is the amount contributed to an employee's superannuation fund by their employer or business. Employers are obliged by law to make superannuation contributions for most employees. Exceptions include, but are not limited to, those employees who are:

paid less than $450 per month;

aged 70 years and over; or

aged under 18 years working 30 hours or less per week.³

Personal contribution is the after-tax contribution made by a person to their superannuation account. Personal contributions are usually voluntary but are compulsory in most parts of the public sector.

Employees are those who work for a public or private employer and receive remuneration in wages, salary, a retainer fee by their employer while working on a commission basis, tips, piece rates or payment in kind, or operate their own incorporated enterprise with or without hiring employees.

Superannuation coverage
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.

PROPORTION OF EMPLOYEES WITH SUPERANNUATION - 2000
Age Group	Income Group(a)

(a) For employees aged 15-64 years excluding those who indicated nil or negative income or not stated. Source: ABS 2000 Survey of Employment Arrangements and Superannuation.

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.

Australia’s retirement income system⁵
The age pension has been in place for much of the 20th century. It is currently available to men aged 65 years and over and women aged 62 years and over. The qualification age for women is gradually increasing to 65 years, affecting all women born after mid-1935.⁶ Eligibility for the age pension is also subject to means and income testing. The full pension is set at 25% of average male weekly ordinary time earnings for a single person or 40% for a couple.

Although superannuation was introduced in Australia in the mid-1800s, it did not affect the majority of Australians until the mid-1980s when Award Superannuation was introduced. This provided a 3% employer superannuation contribution to employees in lieu of a 3% wage increase. Superannuation coverage increased in the early 1990s with the introduction of the Superannuation Guarantee Charge. Compulsory employer contributions, initially set at 3%, are planned to rise to 9% by 2002-03. Personal superannuation contributions are still voluntary in most industries, although in most areas of the public sector a minimum of 2% must be contributed by employees.

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


	Persons

	%
Cost/cannot afford to make contributions	37.5
Have not bothered/never thought about or not interested in superannuation	18.1
Have employer contributions, but are not currently eligible to make contributions	7.4
Have other investments besides superannuation	6.2
Already covered by employer superannuation	4.7
Paying off mortgage	4.6
Too old/too young	4.5
Erosion of funds/return not worthwhile	3.7
Other	13.3

Total employees not making personal superannuation contributions	100.0

	‘000
Total number of employees not making personal superannuation contributions	5,418.8

Total number of employees	7,460.6

Source: ABS 2000 Survey of Employment Arrangements and Superannuation.

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.

Superannuation balances
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


	Median account balance
	$

Sex
Males	14,801
Females	7,037
Annual cash income (per year)
$1 to less than $20,000	1,816
$20,000 to less than $40,000	7,400
$40,000 to less than $60,000	22,114
$60,000 to less than $80,000	48,104
$80,000 to less than $100,000	40,190
$100,000 or more	55,739
Personal contributions
Making personal contributions	35,177
Not making personal contributions	6,067

Total	10,240

Source: ABS 2000 Survey of Employment Arrangements and Superannuation.

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.

Superannuation balance data
The Survey of Employment Arrangements and Superannuation (SEAS) captures about half of the total value of superannuation assets of Australian households. However, the values provided by the survey indicate the relative superannuation entitlements of people with different characteristics. Care should be taken when interpreting superannuation balance information provided by SEAS, particularly in relation to assessing the adequacy of superannuation balances in the community. For further information, see Superannuation: Coverage and Financial Characteristics, Australia, April to June 2000 (ABS cat. no. 6360.0).

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


	Units	Year	Males	Females	Persons

Labour force status(a)
Working	%	2000	77.2	61.5	69.4
Full-time	%	2000	67.7	34.9	51.4
Part-time	%	2000	9.5	26.7	18.0
Not working	%	2000	22.8	38.5	30.6
Average weekly total earnings(b)	$	1999	560	299	430
Earning less than $5,400 per year	%	1999	28.9	45.5	37.2
Age at retirement from full-time work
Less than 45 years	%	1997	7.0	54.5	35.3
45-54 years	%	1997	17.4	21.6	19.9
55-64 years	%	1997	53.3	21.0	34.0
Average life expectancy	years	2000	76.6	82.0	n.a.

(a) Estimates are calendar year annual averages and relate to labour force status at time of survey.
(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).

Endnotes
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.