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Australia’s compulsory superannuation system has been in place since 1992. It started with a compulsory employer contribution of 3 per cent, which came as an agreement with government and unions, and on 1 July 2025 the compulsory employer contribution will reach a maximum of 12%.
What exactly is super?
Super is a favourably taxed investment structure in which you accumulate your savings for retirement. Your employer is compelled to contribute to it as a percentage of your salary. You are unable to withdraw it (except in exceptional circumstances – which your superannuation trustee must agree to) until you reach preservation age – currently between 55 and 60 years old (depending when you were born) if you are still working, and once you reach 65 even if you are still working.
Is super my only source of income for retirement?
In Australia, most people don’t expect to rely solely on their superannuation savings for retirement income. In 1908, the taxpayer-funded Age Pension was introduced, and many Australians have relied on this income to provide for their retirement lifestyle ever since. But as the proportion of Australia’s population over age 65 becomes larger and can expect to live longer, the cost to the government of funding an Age Pension for everyone may become unsustainable. And so, the SG was introduced as one of the three ‘pillars’ of the retirement income system we have today.
The Age Pension is income and assets tested and depending on what you have, your pension is paid on a sliding scale which reaches zero if your income and or assets exceed the cut off amount.
So, for many people their retirement income could be coming from one or more of the following:
- Age pension – income and assets tested and paid to you by the government
- Your super savings – paid by your employer (or yourself if you are self-employed) and held in one of many super accumulation funds or in a Self Managed Super Fund (SMSF).
- Your savings and investments held outside of super.
Who pays my super?
If you work for an income, your employer is required by law to pay your SG contributions at least once a quarter. Whether you’re full or part-time, salaried or casual, if you receive more than $450 per month in wages or salary, you’re legally entitled to these SG payments.
Your savings in super don’t have to be limited to employer contributions only. You also have the option to make extra contributions to your super fund or SMSF on a voluntary basis, whether you’re working or not. And you may benefit from tax concessions on some or all of these personal payments into your super.
When you’re self-employed as a sole trader, you may not be obliged to pay yourself any super. This could have a big impact on your future income in retirement so give some thought to making voluntary contributions into a super fund of your choice.
How is my super calculated?
The current SG rate is 11.5%, so your employer must pay a minimum of 11.5% of your ordinary time earnings (OTE) as a contribution to your super. OTE includes any payments you receive for your ordinary hours of work – your salary, commissions, shift loadings and allowances, but excluding overtime payments.
According to current government policy, the SG rate is scheduled to rise to 12% on 1 July 2025.
Where is my super?
Most employers offer a default super fund for your SG contributions, but you also have the option to go with a different super fund at any time. Depending on the type and size of the fund you’re with, you’ll also have a number of investment options. The way you decide to invest your money will depend on lots of things, including how long until you retire and your tolerance for risk.
When you change jobs, you can usually stay with the same fund or switch to a different one offered by your new employer. As you move from job to job, you may end up with more than one super fund. As these are savings you can draw on for your income in retirement, it’s important to know where they are. It can also be worth looking at bringing multiple super accounts together to save you from paying too much in fees.
Before you just close them, you should carefully check the benefits of each – particularly if you are insured through any of them.
When will I receive my super?
According to current legislation, you can access your super when you reach your preservation age. There are some special circumstances where you can draw on your super earlier, including the First Home Super Saver Scheme.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
