How does superannuation work in Australia?
Got some questions about superannuation? Here are answers to help you understand how super works.
What is superannuation?
Superannuation, or super, is an investment especially designed for retirement. Your employer puts money aside that you can access when you retire. You can also make your own contributions. The idea is that when you retire you’ll have a sum of money to make up for the fact that you are no longer being paid a salary.
How does superannuation work?
If you’re an employee in Australia you are typically entitled to super contributions from your employer. This is known as the Super Guarantee. Your employer must pay at least 10.5% of your ordinary time earnings into a super fund. Your ordinary time earnings, according to the Australian Taxation Office (ATO), are what you generally earn for ordinary hours of work, including your base salary or wages along with certain bonuses, allowances, and some paid leave. Payments for overtime hours are generally not included in ordinary time earnings.
The SG rate will gradually increase over the next few years. It will go up to 11% on 1 July 2023, 11.50% on 1 July 2024 and 12% on 1 July 2025.
You are entitled to the SG regardless of whether you work casual, part-time or full-time hours, and if you are a temporary resident. If you are under 18, though, you have to work at least 30 hours in a week to be eligible for the SG contribution.
You can also make your own contributions to your super fund (more on this later).
Most Aussies can choose the super fund they want their contributions to be paid into. There are a number of factors to consider when choosing a super fund including the fees charged, how it has performed over the long term, the investment options available, insurance and what other services the fund offers.
The money held in your superannuation account is invested in a range of assets by the super fund that manages it. Most funds will let you have a say in how you want your savings invested. You can generally choose from a range of investment options.
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Do you need to have a super fund?
If you are entitled to super from your employer, you do need to have a super fund. When you begin working for the first time or start a new job, you can let your employer know what super fund you’d like your contributions paid into. Your employer will give you a ‘Superannuation standard choice form’ which you can fill in if you want to nominate a super fund.
If you don’t choose a fund, your employer has to ask the ATO if you have a ‘stapled fund’. This is essentially an existing super account that is linked, or ‘stapled’, to you so that it follows you when you change jobs. The ATO will notify you if your employer makes a stapled super fund request and the fund details it has provided.
If you have not nominated a super fund and you don’t have a stapled fund, your employer can pay your super contributions into their default fund.
If you’re self-employed, you don’t have to pay yourself super but you can if you want to. You may choose to make regular contributions or pay lump sums when you can. You may be able to claim a tax deduction for up to $27,500 in annual super contributions. And, as Moneysmart points out, super contributions are taxed at 15%, so you may save tax depending on your situation.
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On our ratings results, comparison tables and some other advertising, we may provide links to third party websites. The primary purpose of these links is to help consumers continue their journey from the ‘research phase’ to the ‘purchasing’ phase. If customers purchase a product after clicking a certain link, Canstar may be paid a commission or fee by the referral partner. Where products are displayed in a comparison table, the display order is not influenced by commercial arrangements and the display sort order is disclosed at the top of the table.
Sponsored or Promoted products are clearly disclosed as such on the website page. They may appear in a number of areas of the website, such as in comparison tables, on hub pages, and in articles. The table position of the Sponsored or Promoted product does not indicate any ranking or rating by Canstar.
Sponsored or Promoted products table
- Sponsored or promoted products that are in a table separate to the comparison tables in this article are displayed from lowest to highest annual cost.
- Performance figures shown for Sponsored or Promoted products reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here.
- Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.
What are concessional and non-concessional super contributions?
There are two different types of super contributions – concessional and non-concessional super – and you can use either (or both) of these to grow your super over time.
Concessional super contributions
Concessional contributions are also known as before-tax contributions because they are made from your before-tax income. Concessional contributions are taxed at 15%.
According to the ATO, examples of concessional contributions include:
- employer contributions, such as:
- compulsory employer contributions
- additional concessional contributions by your employer
- salary sacrifice payments
- other amounts paid by your employer from your before-tax income (e.g. administration fees and insurance premiums)
- contributions allowed as an income tax deduction
- notional taxed contributions if you are a member of a defined benefit fund
- unfunded defined benefit contributions
- some amounts allocated from a fund reserve
- for people over 18, certain family and friend contributions.
There is a cap on how much you can add to your super each financial year. If you exceed these caps, you may need to pay extra tax. The limit on concessional contributions is currently $27,500. Keep in mind this figure includes your employer’s compulsory contributions. The ATO explains that your cap may be higher if you did not use the full amount of your cap in earlier years. This is called the carry-forward of unused concessional contributions.
Non-concessional super contributions
Non-concessional contributions are those made from your after-tax income. As you have already paid tax on this money no additional tax is applied.
According to the ATO, examples of non-concessional contributions include:
- contributions you make, or your employer makes on your behalf, from your after-tax income
- contributions your spouse makes to your super fund (unless your spouse is also your employer)
- personal contributions not claimed as an income tax deduction
- excess concessional (before-tax) contributions that you’ve decided not to release from your super fund
- contributions over your capital gains tax (CGT) cap amount
- retirement benefits withdrawn from super that you then ‘re-contribute’ back into it
- most transfers from foreign super funds (e.g. New Zealand KiwiSaver contributions), but excluding amounts in your fund’s assessable income.
Caps apply to non-concessional contributions you can make into your super each year. The limit is currently $110,000. It may be higher if you’re eligible to use bring-forward arrangements.
When can you access your super?
According to the ATO, you can access your super when you:
- reach your preservation age and retire
- reach your preservation age and choose to begin a transition to retirement income stream while you are still working
- are 65 years old (even if you have not retired).
Your preservation age (which is not the same as age pension age) depends on when you were born (see table). For anyone born from 1 July 1964 onwards, it is 60.
Preservation age based on date of birth
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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 |
From 1 July 1964 | 60 |
Source: Australian Taxation Office
You may be able to access your super early in certain circumstances. These include compassionate grounds or if you’re experiencing severe financial hardship but you’ll have to meet strict conditions.
Read more: Early access to super: Can I withdraw my super early?
How much super do you need to retire comfortably?
The answer to this question will be different for everyone. It depends on when you want to retire, the type of lifestyle you want to live in retirement and, of course, how long you’ll live. You can work out the magic number for you by considering all these factors.
One figure that is often used as a benchmark is the Retirement Standard published by the Association of Superannuation Funds of Australia (ASFA). It estimates that for a “comfortable” retirement a couple will need $640,000 in savings and a single person will need $545,000.
Super Consumers Australia has also produced Retirement Savings Targets to give people an idea of how much they need to save for retirement. According to its calculations, a couple with a medium level of spending will need $402,000 and a single person will need $301,000. These figures assume you will be eligible for the age pension.
It’s important to keep in mind that the estimates made by both ASFA and Super Consumers Australia assume you will own your home outright when you retire. If you will still be paying rent or a mortgage you will probably need more.
Compare Superannuation with Canstar
The table below displays some of the superannuation funds currently available on Canstar’s database for Australians aged 30 to 39 with a super balance of up to $55,000. The results shown are sorted by Star Rating (highest to lowest) and then by 5 year return (highest to lowest). Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.
- Performance, fee and other information displayed in the table has been updated from time to time since the rating date and may not reflect the products as rated.
- The performance and fee information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
- Performance information shown is for the historical periods up to 31/01/2024 and investment options noted in the table information.
- Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here.
- Performance data may not be available for some products. This is indicated in the tables by a note referring the user to the product provider, or by no performance information being shown.
- Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.
- Any advice on this page is general and has not taken into account your objectives, financial situation or needs. Consider whether this general financial advice is right for your personal circumstances. You may need financial advice from a qualified adviser. Canstar is not providing a recommendation for your individual circumstances. See our Detailed Disclosure.
- Not all superannuation funds in the market are listed, and the list above may not include all features relevant to you. Canstar is not providing a recommendation for your individual circumstances.
- Canstar may earn a fee for referrals from its website tables, and from Sponsorship or Promotion of certain products. Fees payable by product providers for referrals and Sponsorship or Promotion may vary between providers, website position, and revenue model. Sponsorship or Promotion fees may be higher than referral fees. Sponsored or Promotion products are clearly disclosed as such on website pages. They may appear in a number of areas of the website such as in comparison tables, on hub pages and in articles. Sponsored or Promotion products may be displayed in a fixed position in a table, regardless of the product’s rating, price or other attributes. The table position of a Sponsored or Promoted product does not indicate any ranking or rating by Canstar. For more information please see How We Get Paid.
- Click here for additional important notes and liability disclaimer.
Performance and Investment Allocation Differences
- Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology.
- Some providers use different age groups for their investment profiles which may result in you being offered or being eligible for a different product to what is displayed in the table. See here for more details.
- Australian Retirement Trust Super Savings’ allocation of funds for investors aged 55-99 differ from Canstar’s methodology – see details here.
- The Australian Retirement Trust Super Savings (formerly Sunsuper for Life) product may appear in the table multiple times. While you will not be offered any single investment option, this is to take into account the different combinations of investment options Australian Retirement Trust may apply to your account based on your age. For more detail in relation to the Australian Retirement Trust (formerly SunSuper for Life) product please refer to the PDS issued by Australian Retirement Trust for this product.
- Investment profiles applied initially may change over time in line with an investor’s age. See the provider’s Product Disclosure Statement and TMD and in particular applicable age groups for more information about how providers determine their investment profiles.
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This article was reviewed by our Editor-at-Large Effie Zahos before it was updated, as part of our fact-checking process.
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