Superannuation (often simply called ‘super’) is Australia’s compulsory retirement savings system where employers contribute a percentage of an employee’s earnings into a Superannuation fund.

Currently set at 11.5% of ordinary time earnings, these contributions are invested over the employee’s working life to provide income in retirement. The system is regulated by the Australian Taxation Office (ATO) and the Australian Prudential Regulation Authority (APRA), with strict rules governing contributions, withdrawals, and fund management.

The Superannuation system

Superannuation Guarantee (SG)

The Superannuation Guarantee is the foundation of Australia’s retirement income policy. Under this system:

• Employers must contribute a minimum percentage of an employee’s ordinary time earnings to a Superannuation fund
• The current SG rate is 11.5% (as of July 2024)
• The SG rate is legislated to increase to 12% by July 2025
• Contributions are made at least quarterly
• Failure to pay SG results in the Superannuation Guarantee Charge (SGC), which includes the shortfall, interest, and administration fees

Eligibility for Superannuation Guarantee

Employers must pay Super for employees who:

• Are 18 years or older and earn $450 or more (before tax) in a calendar month (note: this threshold is being phased out)
• Are under 18 years, work more than 30 hours per week, and earn at least $450 per month
• Are contractors who are deemed employees for Super purposes

Types of Superannuation funds

Industry funds

• Originally established for workers in a specific industry
• Now often open to anyone
• Run on a not-for-profit basis
• Examples: AustralianSuper, Cbus, HESTA

Retail funds

• Run by financial institutions
• Often part of banking or insurance groups
• Operated for profit
• Examples: BT Super, Colonial First State, MLC

Public sector funds

• Established for government employees
• Some are now open to the public
• Examples: QSuper, UniSuper, Commonwealth Superannuation Scheme

Corporate funds

• Established by employers for their employees
• May be managed by a financial institution or have independent trustees
• Examples: Telstra Super, Qantas Super

Self-Managed Superannuation Funds (SMSFs)

• Private super funds managed by the members (who are also the trustees)
• Maximum of six members
• Subject to strict regulatory requirements
• Members are responsible for investment decisions and compliance

MySuper

MySuper is a default superannuation product with:

• Simple features
• Standard fees
• Single diversified investment strategy or lifecycle investment strategy
• Default insurance on an opt-out basis
• Designed for members who don’t choose a super fund

Contributions to Super

Concessional (pre-tax) contributions

• Employer contributions (including SG)
• Salary sacrifice arrangements
• Personal contributions claimed as a tax deduction
• Concessionally taxed at 15% (or 30% for high-income earners)
• Annual cap of $27,500 (2024-25 financial year)
• Catch-up concessional contributions may be available for those with a total super balance less than $500,000

Non-concessional (after-tax) contributions

• Personal contributions made from after-tax income
• No tax on contribution as tax has already been paid
• Annual cap of $110,000 (2024-25 financial year)
• Three-year bring-forward rule allows contributions of up to $330,000 in a single year (subject to total super balance)

Government co-contribution

• Available for low or middle-income earners who make personal after-tax contributions
• Maximum co-contribution of $500 if eligible person contributes $1,000 and meets income tests
• Reduces gradually as income increases

Low Income Superannuation Tax Offset (LISTO)

• Refunds the 15% contributions tax for low-income earners
• Maximum refund of $500 per financial year
• Automatically calculated by the ATO

Spouse contributions

• Contributions made to a spouse’s super account
• Tax offset of up to $540 available for contributions to a low-income or non-working spouse
• Counts towards recipient’s non-concessional cap

Accessing Super

Preservation age

The preservation age is when you can access your super and is based on your date of birth:

Date of Birth	Preservation Age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
After 30 June 1964	60

Conditions of release

Super can generally only be accessed when you:

• Reach your preservation age and retire
• Reach age 65 (even if you haven’t retired)
• Start a transition to retirement income stream after reaching preservation age
• Experience severe financial hardship (subject to strict conditions)
• Have a terminal medical condition
• Have a permanent incapacity
• Are a temporary resident permanently departing Australia
• Have a Super balance of less than $200

Early release of Superannuation

In limited circumstances, early access may be granted for:

• Specific compassionate grounds (e.g., medical treatment, mortgage payments to prevent foreclosure)
• Terminal illness
• Permanent incapacity
• Severe financial hardship
• First Home Super Saver Scheme

First Home Super Saver Scheme (FHSSS)

• Allows first home buyers to save within Super
• Voluntary contributions of up to $15,000 per financial year
• Maximum total of $50,000 can be withdrawn
• Provides tax advantages compared to saving outside Super

Superannuation in retirement

Account-based pensions

• Regular income stream from super savings
• Flexible payment amounts (subject to minimum annual withdrawals)
• Investment earnings are tax-free in retirement phase
• Minimum withdrawal percentages based on age

Transfer balance cap

• Limits the amount that can be transferred to tax-free retirement phase
• General transfer balance cap is $1.9 million (indexed annually)
• Excess amounts must remain in accumulation phase or be withdrawn

Age pension and Superannuation

• Designed to supplement or replace the age pension
• Age pension is means-tested based on income and assets
• Super balances are included in the means test
• Withdrawals from Super can affect Age Pension entitlements

Taxation

Tax on contributions

• Concessional contributions taxed at 15% (or 30% for high-income earners)
• Non-concessional contributions are not taxed in the fund

Tax on earnings

• Investment earnings in accumulation phase taxed at up to 15%
• Capital gains on assets held for more than 12 months effectively taxed at 10%
• Earnings in retirement phase (account-based pension) are tax-free

Tax on withdrawals

• Tax-free if withdrawn after age 60
• If withdrawn before age 60, tax may apply to the taxable component
• Tax on death benefits depends on whether the beneficiary is a dependant for tax purposes

Superannuation and employment

Choice of fund

• Most employees can choose which superannuation fund receives their SG contributions
• Employers must provide a Standard Choice Form within 28 days of starting employment
• If no choice is made, contributions go to the employer’s default fund

Superannuation on termination

• Final superannuation contributions must be paid by the next quarterly due date
• Redundancy payments are generally not subject to superannuation
• Annual leave and long service leave payments attract superannuation contributions

Superannuation for contractors

• Contractors who are engaged primarily for labour are entitled to superannuation
• Determined by considering control, provision of equipment, risk, and integration into the business

Portable Superannuation

• Follows the worker throughout their career
• Multiple accounts can be consolidated to avoid duplicate fees
• AUSfund and SuperMatch help connect people with lost superannuation

Recent and upcoming changes

Increase in Superannuation Guarantee Rate

• Gradual increase from 9.5% to 12% by 2025
• Currently at 11.5% (from July 2024)

Removal of $450 monthly threshold

• Being phased out to ensure all eligible employees receive superannuation
• Improves superannuation equity for low-income and part-time workers

Stapling measures

• From November 2021, superannuation follows employees when they change jobs
• Reduces the creation of multiple accounts
• New employers must check with the ATO if a new employee has an existing fund

Work test changes

• Work test requirements for contributions for those aged 67-74 have been relaxed
• Non-concessional contributions and salary sacrifice contributions can be made without meeting the work test

Superannuation strategies

Salary sacrifice

• Arranging with employer to contribute part of pre-tax salary to superannuation
• Reduces taxable income and increases retirement savings
• Must be prospective arrangement (not retrospective)

Contribution splitting

• Transferring concessional contributions to a spouse’s account
• Can help equalise balances between partners
• Subject to specific conditions and timing requirements

Transition to retirement

• Accessing superannuation as an income stream while still working
• Available once preservation age is reached
• Can be combined with salary sacrifice to boost retirement savings

Downsizer contributions

• Individuals aged 55 or older can contribute up to $300,000 from the proceeds of selling their main residence
• Does not count towards non-concessional contributions cap
• Property must have been owned for at least 10 years