This assignment is about Compulsory superannuation is rising from 9% to 12%. Essay Example

6Superannuation

Superannuation in Australia

Superannuation

A. Superannuation in Australia

Superannuation or simply “super” in Australia refers to a special way in which people save from their earnings an amount of money that is expected to cater for one’s needs after retirement. Despite the fact that there are different ways of saving, this form of saving is directly linked with one’s employment (Matterson 2011). The contributions to this form of saving can be done on one’s behalf by the employer. It is special because there are certain government rules are met during the payment like reduced taxation in comparison to payment through a bank. Moreover, there are tax benefits in this kind of payment after retirement when a person takes out some money from the fund. When a person has a superannuation fund paid in his account, the age pension cost is reduced for the government and every other person’s taxes are reduced. Another goal for superannuation also is that the national savings are increased and can help in the increment of Australian businesses to create more jobs (Matterson 2011).

Superannuation began in Australia through a law called the Superannuation Guarantee. The act of 1992 was to make sure that employees get support from their employers what was called superannuation support. This support requires a person’s employer to pay a defined minimal amount of money from one’s earnings, which is the superannuation fund. The amount was to be paid directly to the accounts not less than once every year. This was to be paid before July 28th of every financial year. The amount was not to be paid in cash to the beneficiary but to the bank. What one was supposed to do is to make sure that the employer makes the right amounts of the fund on one’s behalf (Matterson 2011).

Currently the superannuation fund is faced with a number of challenges. According to (Matterson 2011), there is a financial stake that is involved in the fund. Since the superannuation has been decided, it will be a relevant asset for the retirees for meeting their goals. Longevity of life more than expected poses a challenge to the superannuation. Retirement savings can be affected by poor returns from the markets. Thirdly, high inflation which may be unprecedented may raise the retirement living cost. The behaviour of retirees such as poor spending and decisions in investment may be detrimental to the fund. Finally, poor health can easily lead to increased costs forcing the overspending of the superannuation fund available (Cooper cited in Matterson 2011)

Retirement funds and benefits are very important. This provides a security for a person. Post retirement often comes with life adjustments so as to accommodate for lack of employment. Superannuation is a good way to encourage the people to save for their life after the retirement. The employers and employers as well as the financial planners should work together to help find the best possible way to invest for the future after retirement.

B. Currently women have less superannuation that the male peers. This has resulted from a number of factors that result from superannuation entitlements that emanate from the paid as well as unpaid workforce (Parr et al 2007). Most women are in lower positions compared to men and they work within their home areas. Still, most women apart from working in lower positions they do not engage in paid employment compared to men and as a result they have lesser incomes compared to men. These challenges require policies that will address these challenges facing women especially in the accession of retirement resources either in the superannuation fund or in the care responsibilities (Parr et al 2007).

One of the reasons which have been argued as the source of this imbalance is the time extra tasks that women are involved. Child care is seen as one of the challenges that faces superannuation, making the women have lesser superannuation compared to men (Parr et al 2007). However this argument tries to separate women from men, and claiming it is naturally expected that women have less in the superannuation, the opposite may be true. Childcare does not go throughout a woman’s life. There must be a policy that allows more women to be permanently employed so that their superannuation funds go high and be accessed by more of them.

Women have a lot of expenses as compared to men. Women sought out the day to day household expenses and this leaves them with them with little to for their retirement. Women are shy on investments and lack information on retirement investment. This makes them to lag behind men in terms of superannuation

C. Different methods are used to determine how much enough for retirement.

Persons will use different methods to determine what is enough to secure ones future after retirement. (Vickie 2013) reports that retirement benefits may be measured differently depending on the objectives and values of a persn or a family. Stakeholders, organisations, policy makers, the employers/sponsors/plan and financial advisors/individuals will differ in measuring the required or the enough retirement benefits. The stanard of living before retirement based on the substitution ratio connection between after and before retirement income. These can be viewed from different pespectives. That is the stakeholder with their motivators – will depend on which type are you for example the employer, individual or financial institution. Individuals will take an approach of pesonal preferences of their needs, risks and other circumstances after retirement. That will choose a retirement plan that will allow them to meet their retirement goals and that one that will be independent (financial suficiency after the retirement). The policy makers use the appropriatre sefety net , dropping the risk of elderly shortage and dropping dependence on other persons or the government. They also use the health costs and medicare to determine what is enough for retirement.

The substitution relation based on the pre retirement income – the needs to retirement relative to the income just before the retirement provide a good way to determine what enough for retirement is. One evaluates on the requirements that one has to measure the retirement needs. If for example one is still paying for education fees for his or her children he or she cannot be able to save enough for the retirement because of the needs to pay for education. Another determinant is the amount of money that one receives as salary from their employment. Employers use the salary to determine what is due for that person on the part of employer’s contribution. Higher salary will attract higher contributions by the employer. Stable and relative earnings will help identify how the expenses will change in retirement as (Vickie 2013) continues to elaborate. This is based on the gross income or the after tax income. Also with the elimination of taxes after retirement will determine the amount needed for retirement. However this method makes it hard to slot in individual differences and changes in everyday expenditure that take place during the retirement period like family with children spend substantial amount of money on child rearing especially if in college like indicated above.

Cash flow analysis forecast in relation to inflation – personalised cashflow present the best method to determine the amount enough for retirement. This needs a detailed budget forecasts that are beyond the ability of most individuals especially the long term one. They can accommodate individual differences unlike the other method. It requires greator understanding of the current spending and expected spending patterns/decisions. This method is suitable most to those nearing retirement as (Vickie 2013) reports.

Strategies to improve the overall balance of a super account.

Minimising on the unnecessary expenses and instead saving them in the super account. This will boost the account. Avoiding withdrawal from the account,withdrawals will drastically reduce the amount which will affect the amount to receive upon retirement. Frequent statements of the account aware of the amount one has saved, this will help improve the account balance if its below the target limit.

References

Matterson, W 2011, From cradle to grave: evolution of a superannuation fund, Milliman white paper, 1-7. Web:<<au.milliman.com/perspective/pdfs/cradle-to-grave.pdf‎>> retrieved on May 26, 2013.

Parr, N, Ferris, S & Mahuteau, S 2007, The impact of children on Australian women’s and men’s superannuation. The HILDA survey research conference 2007, 1-30.

Vickie Bajtelsmit, A, R 2013, Measurement of retirement benefit adequacy; which, why, for whom and how much. New Yolk: society of Actuaries pension section and pension section research committee.