Australia’s superannuation system, or super, is the chief method by which Australians save for a comfortable retirement.
The enforced savings vehicle is one of the largest asset classes in the nation, worth a staggering $4.1 trillion as of early 2025. To put this figure into context, the Australian stock exchange is worth an estimated $3.3 trillion.
Under Australia’s super system, employers must set aside a portion of the worker’s income each pay cycle—known as the superannuation guarantee (SG)—into a chosen fund.
The SG is expressed as a percentage of an employee’s income, and the current SG, which the federal government increases periodically, is 11.5%.
How Does Super Work?
When an employee starts a new job, they can either nominate their preferred super fund or opt into their employer’s default fund, which is known as a MySuper product. To qualify for super payments, employees must work more than 30 hours a week.
As part of each pay cycle, the employer must set aside the SG guarantee—11.5%—of the worker’s gross income (not net) in the nominated fund. As an employee, you should be able to see the amount of super you are accruing itemised on each pay slip. Note that there are steep penalties for employers who fail to pay employees their super entitlements.
An employee’s super fund invests contributions over an employee’s working life so that by the time the worker retires, known as the ‘preservation age,’ the fund has ideally turned thousands of dollars in contributions into hundreds of thousands.
For many Australians, the obligatory super system is their sole financial investment during their lifetime, giving them exposure to bonds, stocks, property and REITs and enabling them to take advantage of compound interest over the course of their career.
Some take a set-and-forget approach to their super, simply allowing the money to accrue over the years, while others evaluate their funds regularly, switching for greater exposure to certain assets or to better align their investments with ethical considerations.
As super is a long-term investment, it’s not unusual for Australians’ retirement balances to go backwards in periods of economic turmoil—such as a pandemic or recession.
These cyclical dips are less of a worry for younger workers who have time to claw back any losses, while older workers approaching retirement will often switch their super investment portfolio to more defensive assets, such as bonds, fixed interest, and cash.
Others who don’t mind a measure of risk will switch to high-growth stocks within the fund as they near retirement to try to maximise their returns. This way, workers can match their risk profile to different pre-mixed investment options within each fund, such as growth (with around 85% in shares), balanced (between 50% and 70% in shares), and conservative (only 30% in shares) options.
Don’t worry if you don’t have time to actively monitor your super, either. Most Australians simply opt for their employer’s default MySuper product, which offers a balanced investment mix with very few bells and whistles but often low fees. The Association of Super Funds of Australia (ASFA) estimates that of the 24.6 million super accounts, 14.8 million are held in MySuper products. These default MySuper funds are obliged to meet a minimum standard of performance or risk being shut down by the Government regulator, APRA.
Under recent superannuation reforms, you can change jobs while keeping your super fund ‘stapled’ to your tax file number. This means the fund follows you from one job to the next unless you indicate otherwise. The reforms were introduced to prevent workers from unwittingly opening multiple super accounts each time they started a new job, resulting in multiple and duplicate account fees.
While self-employed contractors and business owners don’t automatically receive super, they can contribute a portion of their income to a fund in a process known as voluntary contributions.
The age at which you can access your super depends on when you were born. If you were born before 1 July 1960, you can draw upon your super as early as 55, but if you were born between 1960 and 1964, your preservation age will be between 55 and 60. Those born after July 1 1965 can only access super when they turn 60.
When and Why Was Super Introduced?
Introduced in 1992, Australia’s super system is the brainchild of former Labor prime minister Paul Keating. While superannuation existed for over a century before Keating made it obligatory, it was largely reserved for white-collar workers and highly paid civil servants.
The idea behind super was to provide all Australians with a comfortable retirement and ease the burden of the aged pension on the government. Nevertheless, Australians who have not accrued enough superannuation by the time they retire may be eligible for a part or full government pension, depending on their savings.
When it was first introduced, the SG was set at 3% or 4% for employers with a yearly payroll exceeding $1 million. It jumped to 9% in 2002 and rose again to 10.5% in 2013. While it currently sits at 11.5%, it will rise to 12% on July 1, 2025.
Superannuation is the perfect example of compound interest at work. A young worker can accrue a significant amount of money over the decades of their working life as returns earned on contributions are reinvested to generate even more returns.
For example, using ASIC’s Moneysmart super calculator, a 25-year-old earning $90,000 a year and starting off with a super balance of zero can expect a nest egg of roughly $657,000 by the age of 67 in a default fund, once fees have been taken into account.
This also assumes an SG of 11.5% and an average annual investment return of 7.5%. If they wish to retire a little earlier, at age 65, they can expect around $603,000 by then.
How Much Super Is Enough?
Many Australians fret that they will not have enough money to retire, but the good news is that if you manage to own your own home by the time you stop working—and are therefore no longer paying off a mortgage—a little bit of super can go a long way.
Since 2004, the Australian Association of Super Funds Australia (ASFA) has been compiling a retirement standard that details the annual amount needed for both comfortable and modest lifestyles for couples and singles.
For those aged 65 to 84 seeking a modest lifestyle, as of September 2024, the AFSA estimates couples will need $47,475 per year, while singles will require $32,930 per year. Aussies after a more comfortable standard of living will need $73,031 a year for couples and $51,814 for singles—assuming home ownership in all of these examples.
Different projections apply once retirees reach the age of 85. You can read more in the AFSA Retirement Standard Guide.
Different Types of Super Funds
There are four main types of super fund, with most Australian employees invested in either an ‘industry’ or a ‘retail’ fund.
Industry Funds
While industry funds started out servicing distinct sectors, many of them are now open to outside employees. For example, one of the top-performing industry funds, Hostplus, was once the preserve of hospitality workers but now offers an open membership model. Similarly, UniSuper was once dedicated to service sector ‘tertiary’ workers, but members now stem from a range of industries.
One of the main advantages of industry funds is that all profits are funnelled back into the fund, and most offer a low-fee MySuper product.
The Productivity Commission’s landmark 2018 report Superannuation: Assessing Efficiency and Competitiveness found that industry funds often perform much better than retail funds.
“Underperformers span both default and choice, and most (but not all) affected members are in retail funds,” the report noted.
Retail Funds
As the name suggests, retail funds are run by banks or institutions, with some profit generated for the provider company. They offer a wider range of investment options, and many also feature a default MySuper product.
They are generally more expensive than industry funds and may require more active monitoring to oversee returns.
Financial advisors often recommend certain retail funds to clients if they align with their investment objectives.
The 2019 Hayne Royal Commission into the banking, superannuation and the financial services industry found that a number of retail funds were charging fees to members for no service, leading to a raft of reforms and recommendations obliging retail funds to lift their game.
Corporate Funds
Corporate funds are less common these days, but some large corporations still run
their own superannuation fund for workers.
The company may appoint an independent board of trustees or outsource the operation of the fund to another superannuation fund.
As ASIC’s Moneysmart points out: “Corporate funds run by the employer or an industry fund will usually return all profits to members. Those run by retail funds will keep some profits.”
Public Sector Funds
Public sector funds are a type of closed fund run for government employees, although some have begun to open their membership to those outside the public sector.
While the fund may not offer as varied a selection as retail or industry funds, it may compensate by offering a higher SG than the mandated level—sometimes as high as around 18%.
They may offer default MySyuper products, and they generally charge low fees. Profits are also funnelled back into the fund.
Self-Managed Superannuation Funds (SMSFs)
A self-managed super fund (SMSF) is managed directly by the employee, which may be ideal for those who want complete control over their investments.
However, there are rules to running your own SMSF, including adhering to the best-practice protocols that apply to other types of superannuation funds. You cannot, for example, invest in an asset if it’s not in the best interest of your retirement income. Complaints can be lodged with the corporate regulator if you fail to administer the fund to best practice.
An SMSF can have no more than six members. If you set up the fund, you will become a trustee and ultimately responsible for its performance.
SMSFs are also time-consuming and make more sense for those with larger balances and strong financial acumen.
Making Additional Super Contributions: Your Options
Many Australians elect to make additional contributions to the 11.5% that their employer pays in. Let’s take a closer look at how this works.
Concessional Tax Contributions
If you contribute a pretax amount to your super fund—in other words, if you direct your employer to divert an additional percentage of your gross pay to your fund—this is known as a concessional tax contribution. Your employer may also refer to this as salary packaging.
These additional pretax contributions are taxed at only 15% within your super fund, which is likely to be less than your income tax rate. This is one of the reasons that additional concessional super contributions are considered to be such a tax-efficient form of investment.
“Generally, making extra concessional contributions is tax effective if you earn more than $45,000 per year,” ASIC’s MoneySmart notes.
For this financial year, the concessional contributions cap is $30,000. You can still add more than this amount, but this will be taxed at a higher rate. You may, however, be able to ‘carry forward’ any unused caps from previous years to make extra concessional contributions up to a maximum of five years.
Non-Concessional Contributions
You may also opt to contribute additional super contributions from your after-tax pay, known as non-concessional tax contributions.
You can add up to $120,000 per year, without attracting further tax. Furthermore, you may be spared from further tax even if you exceed the annual non-concessional contributions cap by accessing future year caps, also known as the ‘bring-forward’ arrangement.
Visit the ATO’s guide for more details on non-concessional fund contributions.
Government Super Co-Contribution
Even if you’re on a low income, there are ways to maximise your super via government co-contributions.
If you make an after-tax (non-concessional) super contribution, the government will match it up to $500 per year. To receive the maximum amount of $500, you must earn less or the same as the lowest income threshold of $45,400 and contribute at least $1,000 of your own money.
The good news is you don’t need to apply for the super co-contribution—the ATO will simply deposit the co-payment into your account once you lodge your tax return.
You can read more about income thresholds and what you may be entitled to in the ATO’s guide to super co-contributions.
What To Look For In a Super Fund
While most Australians opt for their employer’s default fund, it’s never too late to take an active role in your super and ensure you’re in one of the better-performing funds.
Performance
Performance is one of the most important rubrics when analysing super funds, as the difference between a mediocre fund and a high-performing super product is significant.
The Productivity Commission’s 2018 review made this exact point when they used the example of a 21-year-old on a $50,000 salary. The commission found that if they joined a super fund that regularly ranked in the top quarter of performers, the worker could expect to retire at 67 with $1.1 million. However, if the inverse were true and the young employee spent their working life paying into a fund routinely in the bottom 25%, they would retire with a nest egg of $610,000. That is almost 50% less.
Forbes Advisor Australia has conducted rigorous research on default MySuper products to compile our list of favourite funds based on performance. You can also do your own research by comparing performance via the ATO’s YourSuper comparison tool.
When evaluating performance, it is wise to focus on the long-term return—between seven and ten years—rather than just annual performance.
Fees
A fund that offers low fees is crucial as charges can add up significantly over the lifetime of your nest egg. There are generally three types of fees to look out for: annual administration, investment and insurance.
The Productivity Commission’s 2018 report noted: “Evidence abounds of excessive and unwarranted fees in the super system. Reported fees have trended down, but a tail of high-fee products remains entrenched, mostly in retail funds.”
If you’re unsure of the fees you’re being charged, download your super fund’s annual statement, which details your super balance and most recent contribution amount and the fees the fund has levied. You will also see a 15% deduction on your balance, which represents the tax you paid on your earnings that year.
As a general rule, MySuper products offer the most competitive fees. For example, the Hostplus balanced indexed option, the MySuper product, levies an annual administration fee of $78 per year.
Insurance: Disability and Death Cover
Your annual statement will also show what insurance products are included within your coverage.
It is common these days for large funds to include some form of death cover, as well as total or permanent disability (TPD) cover. In both cases, you can nominate a beneficiary, such as a spouse or parent, in case of a payout.
You may also choose to take out income protection insurance through your fund in case you’re made redundant. You will need to pay an additional fee for these insurances, so make sure your level of coverage—and the premium you’re being slugged through the fund—suits your needs.
Ethical Concerns
Since 2022, super funds have been obliged to be transparent about their portfolio holdings. This has allowed Australians to gain a clearer understanding of where their money is invested and to withdraw from portfolios that run counter to their values.
In response, many funds now offer ethical investment streams that eliminate investment in companies that engage in controversial practices—such as fossil fuel exploration, tobacco production and weapons—and privilege those that do good in the world, be it green companies or those championing social causes.
In 2023, the Responsible Investment Association of Australia (RIAA) introduced a designation for super funds, the Responsible Super Fund Leader insignia, for those funds that screen out companies engaged in unethical practices.
While ethical considerations are important, be sure to check the other features of a super fund, including fees and performance.
Accessing Your Super
When it comes time to access your super, you can choose between two options:
- Lump sum: Once you reach preservation age, you can withdraw all of your super in one hit. However, as the ATO points out: “Once you take a lump sum out of your super, it is no longer considered to be super. If you invest the money, earnings on those investments are not taxed as super and may need to be declared in your tax return.”
- Income stream: Many retirees opt for an income stream, also known as a pension (not to be confused with the age pension) or annuity, which provides regular payments from the super balance spread out over many years.
Each option has different tax implications and pros and cons depending on your financial situation, so make sure you obtain professional advice before retirement.
