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Superannuation: a 30+ year journey but now stop fiddling

We are now celebrating the 30th birthday of compulsory superannuation. Of course, the origins of super go back much further. When I resigned from the bank in 1964, I received a cheque for the money in my bank pension fund. It was quite a small amount, it wasn’t preserved, and it was quickly spent.

Before compulsory super

Today in Australia, every employee should be a member of a superannuation scheme, but it was not always like that. Until the early 1980s, superannuation tended to be restricted to white-collar male career workers such as public servants and bank officers. In those days, few women worked after marriage and most men stayed in one job for life. However, super gradually became a significant industrial issue as unions campaigned against the disparity between blue-collar and white-collar workers and their conditions.

In addition, superannuation was used by aggressive tax planners as a tax rort. They established superannuation schemes that were designed to minimise tax rather than provide benefits to employees. Typically, the employer, usually a small business, would make a large tax-deductible contribution to his own superannuation fund and then lend the money back to the business at a tiny rate of interest. The fund suffered and in many cases was unable to pay adequate retirement benefits.

Until 1983, superannuation was an investor's paradise. There was no tax on contributions, no tax on fund earnings and they paid less than 3% lump sum tax on the end benefit. Obviously, the rules then were simple and the tax concessions gave an incentive to place money into superannuation. However, at the same time as they were legitimising superannuation, the Hawke Government raised the tax on retirement payments to 30% to bring them into line with the tax on long service leave.

But the Hawke-Keating Government did much more than simply increase the exit tax to 30%. They also introduced a concept that was unknown in Australia until 1983. To encourage retirees to hold on to their superannuation and not cash it and spend it, they brought in 'rollover funds'. If you rolled your superannuation into a fund such as an Approved Deposit Fund (ADF) or a Deferred Annuity (DA), you could defer payment of the exit tax and leave your money in what was then a zero-tax environment. Of course, this appealed to retirees and rollover funds grew at a great rate.

Raising the tax on superannuation payments tenfold from 3% to 30% may have been a good thing for government coffers but it hit one group particularly hard: airline pilots. They received high salaries and large superannuation payments. They retaliated by banning all flights in and out of Canberra until the government backed down.

A confrontation followed but finally a compromise was reached. The pilots agreed to lift their blockade if the government took away the retrospective nature of the new tax. The government said yes but, in doing so, created the first of the complications in the superannuation system.

The portion of the superannuation payment that related to pre-1983 service continued to be taxed at the old low rate. The portion that related to service after that date (called post-1983 service) was taxed at the new higher rate. This is where the terms 'pre' and 'post' come from.

In 1988, the then Treasurer Paul Keating suddenly realised that he had introduced one of the most unpopular taxes in history, and yet would receive little benefit from the higher tax as most of the money would be collected by future governments.

The move to the current system

How did Keating solve it? Simple. He chopped the 30% exit tax in half and promptly made up the loss by levying a 15% tax on contributions. The change made no difference to the final payment but it gave the government of the day a large and growing income. It also reduced the impact of separating the exit tax into pre and post 1983 components because a tax on contributions enjoyed no such concession.

It was a financial win for the government but Keating still had more revenue raising work to do. He also added a 15% tax to the income of the superannuation fund itself.

In just five years the taxes on superannuation had gone from nil on contributions, nil on earnings and less than 3% on the final payment to 15% on contributions, 15% per annum on fund earnings and 15% on the end benefit.

In 1991, the Superannuation Guarantee (SG) was introduced and legislated in 1992. The compulsory superannuation system ensured Australian employers paid their employees’ super, boosting super coverage to 80% by 1993. Super coverage continued to rise from the 1990s, and in the 2000s, Australians were able to choose their own super fund, and were given the opportunity to transition to retirement. The SG will increase to 10.5% from 1 July 2022.

Complexity creeps in 

As superannuation enables people to move assets into a low tax environment, there has long been debate as to how much should be allowed. Until 1994, it was governed by a complicated formula based on your average annual salary and your length of service. It was horrendously complex and on 1 July 1994, new simplified rules were introduced which included the concept of a Reasonable Benefit limit (RBL) which governed the amount that could be held in a superannuation or a rollover fund without penalty. From that date, everybody was allowed a lump sum RBL of $400,000, and a pension RBL of $800,000. The figures were indexed to AWOTE so they grew substantially over time. 

In 1996, the Coalition went to went to the polls guaranteeing no changes to superannuation, but within weeks of winning government, Howard split his promises into 'core’ and 'non core' thus giving a whole new dimension to politicians’ promises.

It didn’t stop there. Just one day before the August 1996 Budget, Treasurer Peter Costello appeared on national television repeating the promise that there would be no changes to superannuation. Next day he announced a 15% surcharge on contributions, and justified it on the grounds that the well off should make a contribution to solving the nation’s problems. The result was a loss of confidence in the integrity of the superannuation system. It was a most unpopular measure and after pressure from all sides, it was reduced to 12.5% in 2003 and abolished on 1 July 2005.

Capping contributions to manage benefits

Far-reaching changes were announced in the May 2006 Budget. Non-concessional contributions went from being limitless to limited, Reasonable Benefit Limits were abolished, exit taxes for the over 60s were abolished (except for members of unfunded funds), and there was no longer a requirement that you start withdrawing your money from super at age 65. Tax deductible contributions were limited to $50,000 a year with some transitional measures. Those who could pass the work test were allowed to make tax deductible contributions till age 75. It made superannuation an even more attractive vehicle, but it did prove that change is always with us.

The concept of super had changed. Instead of limiting end benefits, rules were brought in to cap contributions. 

As superannuation funds grew, some claimed it was unfair that wealthy individuals could have $5 million or more in a zero or low tax environment. Various solutions were bandied about, but in 2017, the Turnbull Government bit the bullet and announced that the maximum amount that could be transferred to the zero tax pension environment would be $1.6 million. It was known as the Transfer Balance Cap (TBC). Many people were confused about the concept, and there was wide belief that $1.6 million was the most anybody could hold in pension mode. That was wrong - it was the most that could be transferred to it - the balance could grow provided the mandatory annual pension withdrawals were made.

Large balances paid out of super on death

Those worrying about large balances should take into account that most people with large balances are older retirees who have been investing through superannuation for a long time. As they die, their balances can only be paid in cash, or in some cases their pension will revert to a spouse or a dependant. As the pension amount is limited by the TBC (less any drawdowns), a huge amount of money will leave the superannuation system over the next 10 years.

Continual change has been part of our superannuation system and many of these changes have been reasonable and have improved the system. We have tighter limits on contributions that will restrict the future growth of very large superannuation balances but we also have many layers of complexity that most people do not understand. The challenge now for all parties is to preserve the status quo and to refrain from further major changes. Australia needs everybody to trust the integrity of the superannuation system.


Noel Whittaker is the author of 'Retirement Made Simple' and numerous other books on personal finance. See or email This article is general information and does not consider the circumstances of any individual.


July 06, 2022

Good summary Noel. The system changes so much I think it's foolish for a young person to lock up their savings in super. Rule 1 from George Clason, own your own home. The current system can be manipulated easily, raise the age you can access it, stop lump sum withdrawals, etc. depending upon the govt of the day. I predict huge complexity from the ever-changing rules, and doubt the young will ever see the money. Costello simplified it, which they said was unfair, but those who put large sums in under the new rules lost half of it in the GFC. Buy your own (humble) home first because it wil be a long time before a govt attacks that one.

July 06, 2022

"own your own home": +1 "those who put large sums in under the new rules lost half of it in the GFC": Cash paid nicely, not so shares. "Buy your own (humble) home first": +2, with cash. Makes Age Pension workable.

July 02, 2022

as a high income earner, I only receive approx 6% in employer contributed Super from the Victorian public health system not 9% as it seems that Super is capped for high income earners. furthermore as a high income earner I have to pay an additional 15% tax surcharge ( division 293 tax ) thus I have 30% tax taken out of Super contributions, not just the 15% that keeps being talked about. the idea that high income earners are rorting the Super system is absurd.

July 02, 2022

A good read thanks Noel. I misread the title as Non Stop Fiddling - which seems as appropriate. ??

Fred Nurk
July 02, 2022

LARGE balances!!!!!!!!!!!!!!!!!
Come on Noel......Look at in terms of what a house costs. Consider the rise in materials/fuel/food prices. Watch in the next few months what wage increases will do to your nest egg. Anybody who becomes a retiree through superannuation should be congratulated for easing the burden on the public purse.

Jeff Broderick
June 30, 2022

The current Superannuation system has many things going for it, including its compulsory nature. If it was optional many more people would find themselves on the age pension.
The one glaring problem with the system is it still creates a massive inequality in the way income is taxed.
For Example: My partner and I have averaged around $180,000 per annum, in income and capital gains, over the current 7 years of our retirement. How much tax do we pay on this? Zero. This is ridiculous and needs to be fixed. A minimum 15% tax on all superannuation income would go a long way to make earnings taxation more equitable.
Howard and Costello conned everyone when they abolished super taxes for the over 60's. Most people were never going to pay any, or much, tax anyway because of the size of their earnings. The only people who gained from that change were, and are, the relatively wealthly.

July 02, 2022


SMSF Trustee
July 02, 2022

$90k each is just above AWE. It is NOT ridiculous that you pay zero tax on that. It is the promise that was made to encourage you and all of us to Dave for our retirements.
If you feel guilty then make donations. Do you?

Richard A
July 04, 2022

how about make donations cause its a good thing to do for society and not out of guilt...planned giving

Jon Kalkman
July 02, 2022

Jeff if you don’t understand why your super fund doesn’t pay tax in retirement, I suggest you read the article again. It doesn’t pay tax because tax has already been paid - on contributions and earnings.

Before the Costello changes in 2007, you did pay some tax on withdrawals from your super fund in retirement, but it was surprisingly little. It only applied to taxable portion of the withdrawal and that also had a 15% tax rebate to compensate for earlier contribution taxes. It meant that withdrawals from small funds paid little tax because of the rebate and withdrawals from large funds paid little tax because of the small taxable portion. The decision was fiscally painless but politically fruitful.

Those pre 2007 tax arrangements still apply to death benefits. You may like to check the taxable portion of your super fund to see how much tax your beneficiaries will pay.

June 30, 2022

I think compulsory superannuation commenced much earlier that 30 years ago!
I started work in 1947. I understand that the Labor government during WW2 imposed an income tax to fund Australia's war effort. In setting the tax it seems that it would eventually be returned to contributors as a retirement benefit. In 1950 the value of the fund was £100m (note 'pounds'). However, from some research it seems that in 1977, the Fraser government purloined the fund and it went into consolidated revenue. I understand that the tax imposed during the WW2 has never been rescinded. I worked until I was 79 so my 'contribution' from about 1947 to even just 1977 with interest would have been significant. All just gone with the stroke of a pen! Refer to Noel Whittaker -

June 30, 2022

NOEL : You introduce the article as : "Superannuation: a 30+ year journey but now stop fiddling !" Yes ! A thousand times Yes !.........for God's sake !...........stop fiddling! However , that heart-felt invocation to " the powers that be to stop fiddling always falls on "deaf ears" or is heard by them as an imprecation and an indictment..... and they always retaliate with something clever but malign! e.g. "Super" contributions offset wage increases , compulsory saving for 'your future' sounds good but the delayed reward and a lack of 'ready cash' leaves many wishing that "Super" was a choice and not a "carved in stone". Many responsible investors can actually "do better financially " than the Superannuation Funds "do" and would prefer to receive their wages now and not when they are reach "preservation age"! So....I think that "one" should be able to choose and it should NOT be compulsory! 

July 01, 2022

I agree entirely Trevor. I'm glad the change came for young people starting work to have the choice of Super. Death Benefits are a huge rort for the young to pay and there is no certainty it will be paid to the people named in a nomination. Don't start me on binding nominations because that is the biggest rort. The majority of young people simply nominate parents or siblings. If the young person has a boyfriend/girlfriend for even weeks or months who decides to apply for the Death Benefit should the contributor die, then the Trustee decides and the friend can be paid hundred of thousands of dollars. Ayone young starting work with no assets other than Super needs advice from a Financial Planner/Lawyer to navigate this. And remember Super is not covered by your Will and "all of my Estate" does not include Super. Should never be compulsory. It is far too complicated. Funds do not contribute to your funeral, so if the only money you have is in Super you need other arrangements. Funds do not pay out anything for 6 months thus allowing time for anyone to apply for your Super. It is much easier and no Solicitor required to contest Super than it is to contest a Will.

July 02, 2022

But then maybe they should not be entitled to tax payer funded Aged pensions....

Geoff R
July 05, 2022

>But then maybe they should not be entitled to tax payer funded Aged pensions....

Perhaps a fair compromise would be that you could either get a government Aged pension OR have money in Super retirement mode paying zero tax, but not both. So if you are getting a government pension then your Super is paying tax at 15%. Then let everyone decide which option they want.

Geoff R
July 05, 2022

>But then maybe they should not be entitled to tax payer funded Aged pensions.... Sorry I think I took your comment out of context in my previous response - you meant that if Super was optional and someone opted out then they perhaps should not be entitled to a government aged pension. While that may sound attractive, in reality we don't want lots of old people who are destitute and not eligible for welfare. So while some people who opted out of Super might do really well and retire with ten or a hundred million, many more others would just spend whatever money they received and never save a cent. This is why we need Super to be compulsory and also not allow people to raid their Super saying "It is my money". I would say it really belongs to "future you" not "current you". The only way I can see that Super being optional would work would be where we had a universal pension that was not means tested - everybody who is retired having reached a certain age gets the same amount regardless of any assets or income. And granted we have a trillion in debt that seems unlikely to happen any time soon.

Kym Bailey
June 29, 2022

The SIS Act and the SGAA are in dire need of a make-over. A sad reflection of the currency of the SIS Act was the recent switch of the work test from SISA to the ITAA. (Just the most recent example of redundancy building).
The SGAA smacks of an industrial relations era from the past and there are many provisions that need urgent attention. The extended definition of employee in s12 is a bomb and just serves to clog up the AAT in decision reviews. The supremacy of the contract should be enshrined in the SGAA to make it clear what arrangements are in and what are out.
The penalties in the SGAA are outrageous and are so complicated, they don't necessarily serve the deterrent effect they were 'designed' to achieve.
So conceptually, yes, leave super alone, which may need the "purpose of super" to be enshrined (without vague flowery or incomprehensible language) however, the 2 bodies of legislation that are super specific need a look over to clear up ambiguities, remove complexity and make penalties fit for the purpose they were intended to serve.
(Can't leave the purpose of super hanging as the recent election campaign reminded us that the super pot is just too tempting for politicians to ignore. Why would super be able to be used for home acquisition, for example? Is that easier than looking at the fundamentals of the property market and making structural changes?)

June 30, 2022

Clearly defining the purpose of superannuation - assuming the purpose is a good one - would definitely help assess the current rules and any proposed changes.

I think the purpose is to assist people in smoothing their lifetime consumption from when their income exceeds their expenses (e.g. when they are working) to when it does not (e.g. when retired).

Put like this it is clear why super might be able to used for first home acquisition. It is the time of life where people have the biggest deficit of income over expenses (including home purchase expenses) and owning a home has the long term benefit of reducing expenses in retirement (as it provides accommodation).

It also shows why further changes to the system might be required, as several aspects to the system either provide tax concessions or deprive people of current income without providing this benefit.

July 02, 2022

"first home acquisition ... biggest deficit of income over expenses":

Quite so. But super is not quite the right funding. Positive real interest rates are mostly what is required to increase savings and decrease home prices.


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