INSIGHT
Some $117.5 billion was poured into super last financial year, the second-highest yearly inflow on record. Australians have not put so much money into super in one year since 2006-07, when people poured in a staggering $163.7 billion. Back then, however, many were frantically exploiting generous tax breaks introduced by the Howard government.
These perks, long since scaled back, allowed people to put up to $100,000 into their super tax-free, so many had a good reason to pile into super. Further sweetening the deal, the sharemarket was on a roll. Almost no one had heard of subprime debt.
Today, however, things are different. The amount people can contribute tax-free has been steadily cut, eroding the incentive to pour large amounts into super. On the contrary, it looks likely that tax concessions will be cut significantly in this year's budget.
What's more, most remain cautious about the sharemarket, despite its strong start to the year.
So what might be driving the latest rise in voluntary super contributions?
According to many analysts, battered confidence in the system may finally be recovering, after years of subpar returns.
Thanks to the sharemarket plunge at the height of the 2008 global financial crisis, super balances of many people nearing retirement were hard hit late last decade.
In the market turmoil, many sought out the safety of cash. And for a while at least, term deposits were able to deliver solid returns of more than 6 per cent.
Now, however, lower interest rates have pushed down returns available from bank deposits, and they are not expected to rise any time soon.
At the same time, super funds are showing more promising signs. The typical fund posted an 11.7 per cent return last calendar year, according to SuperRatings, the best result since 2009.
Fortunately for people who topped up their super early in the year, much of this rally occurred in late 2012, with the typical fund gaining 7.8 per cent in the six months to December.
Frequently Asked Questions about this Article…
The article says several factors are driving higher voluntary super contributions: recovering confidence in the sharemarket after years of weak returns, strong recent performance from many super funds (for example a typical fund returned 11.7% last calendar year), and lower bank deposit rates that make term deposits less attractive compared with long‑term super returns.
According to the article, Australians put about $117.5 billion into super last financial year — the second‑highest annual inflow on record, behind the $163.7 billion contributed in 2006–07.
Yes. The article notes that the large 2006–07 inflows were largely driven by generous tax breaks at the time, which allowed people to put up to $100,000 into super tax‑free. Those perks have since been scaled back.
The piece explains that the amount people can contribute tax‑free has been steadily cut over time and suggests it’s likely tax concessions could be reduced further in the current year’s budget.
SuperRatings data cited in the article shows the typical fund returned 11.7% in the last calendar year — the best result since 2009. Much of that rally happened late in the year, with a typical fund gaining 7.8% in the six months to December.
The article points out that lower interest rates have pushed down returns from bank deposits. Term deposits that once delivered solid returns of more than 6% are no longer offering the same yields, making improving superannuation returns relatively more attractive for some investors.
The article indicates confidence may be returning: the sharemarket had a strong start to the year and analysts say battered confidence in the system may finally be recovering after years of subpar returns since the 2008 financial crisis — though many investors remain cautious.
Based on the article, investors should note that voluntary super contributions have risen as funds have posted strong returns and bank deposit rates have fallen. However, tax concessions for super have been reduced over time and further changes may be possible in upcoming budgets, so it’s important to weigh current returns, tax rules and personal goals before deciding to top up super.
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