Superannuation, commonly known as super, plays a central role in Australia’s retirement system. It is designed to help Australians build long-term savings during their working years so they can fund their lifestyle in retirement.
In this guide, we explain how superannuation works in Australia, including when you can access your super, how super funds invest your money, the tax treatment of super contributions and how to compare super funds.
What is superannuation?
Superannuation is a long-term retirement savings system. Throughout your working life, money is contributed into a super fund where it is invested to grow over time.
The system was introduced in 1992 with the Superannuation Guarantee (SG), which requires employers to contribute a percentage of an employee’s earnings into a super fund.
The current Superannuation Guarantee rate is 11.5%, and it is scheduled to increase to 12% from 1 July 2025.
In addition to employer contributions, individuals may also make voluntary contributions to grow their super balance further. These can include:
Concessional contributions (before-tax contributions such as salary sacrifice)
Non-concessional contributions (after-tax contributions made from personal savings)
There are annual contribution caps that limit how much can be added to super each year.
How super investments work
Super funds pool contributions from many members and invest the money across a range of asset classes. These commonly include:
Shares (Australian and international equities)
Property and infrastructure
Fixed interest and bonds
Cash and short-term securities
The goal is to grow retirement savings over the long term through investment returns.
Most super funds offer several investment options, each with different levels of risk and potential return. These may include conservative, balanced, growth or high growth investment strategies.
Over time, investment earnings combined with contributions contribute to the growth of a member’s super balance.
How superannuation fees work
Super funds charge a variety of fees for managing investments and administering member accounts. These fees may be charged as a percentage of the balance, a fixed dollar amount, or both.
Common super fees include:
Administration fees for managing member accounts
Investment management fees for managing the fund’s assets
Performance fees if investment managers exceed performance benchmarks
Transaction or switching fees when changing investment options
Because superannuation is invested over many years, even small differences in fees can affect the total retirement balance over time.
Tax benefits of superannuation
Superannuation generally receives concessional tax treatment compared with many other forms of investment.
In many cases:
Employer and concessional contributions are taxed at 15% within the super fund
Investment earnings within super are also taxed at concessional rates
Individuals may be eligible to claim tax deductions for certain personal contributions
These tax settings are designed to encourage Australians to save for retirement.
When you can access your super
Superannuation is intended as a long-term retirement savings vehicle, which means there are restrictions on when it can be accessed.
The preservation age for most Australians is currently 60. Once you reach your preservation age and meet certain conditions of release linked to retirement, you may be able to access your super.
There are different ways super can be accessed at retirement, including:
A lump sum withdrawal
A regular income stream such as an account-based pension or annuity
A combination of both options
How much super is considered enough for retirement?
The amount of super required for retirement depends on many factors, including lifestyle expectations, retirement age and other sources of income.
The Association of Superannuation Funds of Australia (ASFA) publishes estimates of the savings required to support a comfortable retirement lifestyle.
As at June 2024, ASFA estimates that a comfortable retirement lifestyle requires approximately:
$52,085 per year for a single person
$73,337 per year for a couple
To generate this level of income in retirement (including potential Age Pension support), ASFA estimates retirement savings of approximately:
$595,000 for a single person
$690,000 for a couple
These figures represent national averages and may vary depending on personal circumstances and retirement goals.
Insurance inside superannuation
Many super funds include insurance cover for members. The most common types of insurance within super include:
Life insurance (death cover)
Total and permanent disability (TPD) insurance
Income protection or salary continuance insurance
In some cases, insurance is automatically provided when a member joins a super fund unless they choose to opt out.
Insurance premiums are typically deducted from the super account balance.
Consolidating multiple super accounts
Many Australians accumulate multiple super accounts when changing jobs over time. Having several super accounts can lead to multiple sets of fees being charged.
Super consolidation involves combining multiple super accounts into a single fund. This can make retirement savings easier to manage and may reduce duplicated fees.
Before consolidating super accounts, it is important to review whether any insurance cover, benefits or exit fees could be affected.
Australians can view their super accounts through myGov by accessing the ATO’s superannuation services.
Nominating beneficiaries for your super
Superannuation does not automatically form part of a person’s estate when they pass away. Because of this, super funds allow members to nominate beneficiaries who may receive their super balance.
Some funds allow binding beneficiary nominations, which direct the fund to distribute the balance according to the member’s instructions.
Reviewing beneficiary nominations periodically helps ensure they remain up to date.
Understanding your superannuation options
Superannuation is one of the largest financial assets many Australians accumulate during their working lives. Understanding how super works, how super funds invest money, and how super fees and contributions affect retirement savings can help Australians make more informed decisions about their retirement planning.
Many Australians review their super regularly to understand their investment options, contribution strategies, insurance arrangements and retirement income planning.
© Otivo Pty Ltd, ABN 47 602 457 732, AFSL and Australian Credit Licence no. 485665. The information provided in this article is current as of August 2024 and is for general educational purposes only. The content has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should consider the appropriateness of the information against your own situation and needs before taking any action.