INSIGHT

Putting extra money into superannuation may finally be coming back into favour, as confidence in the sharemarket makes a long-awaited recovery.

Putting extra money into superannuation may finally be coming back into favour, as confidence in the sharemarket makes a long-awaited recovery.

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.

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