Thanks to our world-leading superannuation (super) system, Australians are today retiring with more money than ever before.  
 
Together with other savings, investments and government support, this makes up our retirement income system, which is how we afford to retire. 

This system is made of three pillars:  

1. personal savings and assets, including property and shares  

2. the Government Age Pension, a safety-net for people without other savings 

3. super which was set up to supplement or replace the Age Pension. 
 
The largest of the three pillars, super has become the greatest contributor to Australians’ income in retirement thanks to three key principles. 

Super is compulsory and paid automatically towards workers’ retirement savings. Super is preserved until retirement, preventing temptation to dip into the system early and allowing your super investments to snowball. And super is universal ensuring the benefits apply to everyone. 

Research consistently shows, were it not for these core principles working together, most Australians workers would prioritise short-term financial goals, and make inadequate provision for their future. 

Phases of the super system

Super operates through two phases. 

In the accumulation phase, employers (and workers, if they choose to) contribute money to a super fund, and the savings grow through investment returns. This phase continues until retirement.  

But your super doesn’t have to stop working just because you do. 

A big misconception about super is that it stops growing when you retire

In the retirement phase – a period that can last 20 years or more depending on when you retire and live to – your super balance can be withdrawn as a lump sum or alternatively left in super and converted into a retirement income stream. Investment earnings in this phase are generally tax-free, providing a tax-efficient, regular income source for retirees.  

Choosing a super fund  

The super fund you choose can have a significant impact on your retirement savings, so it’s important to compare funds on their fees, investment options and long-term performance. 
 
When you start a job, your employer will give you a super standard choice form, where you can nominate the fund you want your super paid into, or choose a fund if you don’t have one already. 
 
If you don’t have an existing fund and don’t choose a fund, your employer will pay your super into their ‘default’ fund. 

Types of super funds 

Australian super funds fall into several categories:  
 
Profit-to-member funds – also called industry funds or not-for-profit funds – return profits to members rather than shareholders. Known for their low-cost structure, they have also historically delivered better returns than retail (for-profit) funds. 

Profit-to-member ‘MySuper’ products outperformed market benchmarks by $18 billion in 2024¹  

Retail funds – are typically run by banks and financial institutions. As for-profit funds, their responsibilities (and therefore profits) go to shareholders rather than members. 

Corporate funds – are set up by companies for their workers, with trustees to oversee investments. Also typically not-for-profit.  

Public sector funds – are established for employees of Federal, State and Territory Governments, and usually only allow these workers to join the fund. Operated on a not-for-profit basis.  

Self-Managed Super Funds (SMSFs) – allow up to 6 people to become trustees of their own super fund following rigorous regulations, and are regulated by the Australian Taxation Office (ATO).  

Key components of superannuation explained

There are a few components that make up the majority of super funds: 
 
Tax concessions – to encourage long-term savings for retirement, most super contributions and earnings are taxed at 15% (the average national tax rate is 25%). Further tax discounts apply to some low-income workers. 

Insurance – many funds also offer insurance, providing support to members and their families in the event of death, serious injury or illness. Options includes life insurance, total and permanent disability insurance and income protection insurance. A benefit of paying for insurance in super is you pay for it with income taxed at a lower rate.  

Investments – to grow your retirement savings, super funds invest in a range of assets including shares, property and cash. Most also offer a range of pre-mixed investment options – such as conservative, balanced or growth options – depending on your financial goals and risk tolerance. 

Beneficiaries – nominating beneficiaries means you decide who gets your super after you die. You can choose a binding nomination, which legally obliges your fund to distribute your benefits as specified. Or a non-binding one, which serves as a guide for the trustee to decide.

Design principles of super  

In addition to the three core principles – compulsion, preservation and universality –there are other principles keeping Australia’s super strong: 

Default funds – to ensure all workers benefit from super, those who do not choose a fund must still receive employer contributions paid into a named default fund. 

MySuper products – default funds must be MySuper compliant – a low-cost, low-risk product with a simple investment strategy, ensuring a fair deal for members. 

Stapling – your existing fund is ‘stapled’ to you which means it follows you when you move jobs, reducing the chance of having multiple accounts and fees. 

Performance benchmarks – MySuper products must meet performance benchmarks set by the Australian Prudential Regulation Authority (APRA), or face being removed from market. 

Super regulations

To ensure super operates properly, the system is regulated by several key bodies:  
 
APRA ensures funds follow strict governance and risk management standards to protect the integrity of the entire system.
 
ASIC (Australian Securities and Investments Commission) enforces financial services laws to protect consumers.  
 
And the ATO manages the tax aspects of super (including contributions and withdrawals), employer compliance with super laws, and oversees SMSFs. 

Our super system has many parts. And together, they’re working to make a material difference to the retirement of all Australians. 

FAQs

• Superannuation – what is it?
  Super is a compulsory savings system, designed to boost financial security in retirement. National superannuation rates are the minimum amount your employer must put into a super account for you, on top of your wages. 
• What are the current super rates?
  On 1 July 2025 Australian super rates are 12% of your wage. This has increased incrementally over the years, and as superannuation rates have risen so have super balances. 
• Why is super regulated?
  As a policy that benefits over 17 million Australians, regulations are required to ensure the integrity and effectiveness of the system, and strong protections for consumers.  
• Why is super only taxed at 15%?
  These tax concessions are a thank you from the government for leaving your retirement super invested, rather than withdrawing super early. Once you reach retirement, you pay no tax on super at all. 
• Why are average superannuation returns typically higher for profit-to-member funds?
  Profit-to-member funds were established to put members first. This typically means lower fees compared to retail funds which are for-profit, and pay dividends to shareholders. Profit-to-member funds have also been investment innovators and were some of the first funds to invest in unlisted assets and infrastructure like roads and airports, which have helped provide strong long-term returns.  

References:
1. Australian Prudential Regulation Authority 2024 performance test  

The information set out on this website is of a general nature only and should not be taken as a complete or definitive statement about superannuation. You should not make decisions concerning your superannuation arrangements solely based on the information contained on this website which has been prepared without taking into account your objectives, financial situation or needs.