The Effect Of Superannuation On Australia s Economic...

The concept of superannuation was introduced through the Superannuation Guarantee (SG) with the idea of managing, accumulating and growing assets of members so that once retirement arrives they can enjoy a higher standard of living without concern for a shortage of income when retirement occurs, they arrive in the form of pension, lump sums or both. It is further explained by Dawkins (1992) that our current retirement income system was weak and that there was a need to strengthen Australia’s national saving performance. He stated â€Å"Greater domestic saving will relax the current account constraint on Australia’s economic performance. It will mean that we can grow faster without relying so heavily on foreign saving and building up an†¦show more content†¦Super funds are either accumulation funds or defined funds, accumulated contribution funds are the most common type of superannuation fund and they act as a bank account, however the benefits made by them ar e not capital guaranteed which means that the benefits may be depreciated due to negative investment returns. These are the sorts of investment risks that comes with superannuation. Administration charges, policy fees, insurance premiums and taxes are deducted from members account. Defined benefit funds are based off a formula using the member’s final salary and the years of their employment. This fund also holds investment risk as if the investment is too high the amount that the employer is required to contribute to the fund can reduce and contributions may not be needed. The Financial System Inquiry (FSI) released a recommendation stating â€Å"Seek broad political agreement for, and enshrine in legislation, the objectives of the superannuation system and report publicly on how policy proposals are consistent with achieving these objectives over the long term†. This phrase was directed at the government with respects of them agreeing with the intent of the superannuation system for providing income within retirement instead of relying entirely on the age pension. However, that isn’t the only objective of the superannuation system, the objectives branch off into multiple subsidiary objectives such as