Superannuation explained

Almost all working Australians have superannuation (super). It’s likely to be one of your largest financial assets in the future, so it’s important to understand how it works, and works for you. 

What is super?

Super is a savings system for retirement. Over your working life, your employer puts money on top of your wages into a super account, which stays invested until you retire.  

Super’s important because the more savings you have invested, the more you have to live on in retirement.

Australian super rates have grown

There are laws about the amount of super your employer needs to pay.  

As at 1 July 2025 the minimum amount – called the Superannuation Guarantee – is 12% of your wage. National superannuation rates have increased from 3% when the modern super system was established in 1992, rising incrementally to 9% by 2002, and then 12% by July 2025. 

Super is a powerful way to save for retirement for two main reasons.  

One, because super is taxed concessionally, meaning at a lower rate than other forms of taxable income. And two, because super is reinvested, so your balance snowballs over time. This snowball effect (called compounding) is so effective, that up to 75% of your super balance at retirement can come from earnings, rather than employer contributions. 

The history of super  

Super was created to boost the financial security of Australians in retirement. But it wasn’t always compulsory.  

The introduction of compulsory super, to supplement the government-funded Age Pension, is a fairly recent development

In the 1970s, most Australians relied on the Age Pension and only 32% of workers – mainly public servants and white-collar males – received super.¹  

The benefits at the time were limited too. Super wasn’t portable, meaning it wouldn’t move with the worker if they changed jobs. And payments were restricted to workers who retired with the employer controlling the fund. 

In the 1980s, a push for super by the Australian Council of Trade Unions (ACTU) aimed to solve two key issues. First, to extend the benefits of super to their members which included many blue-collar workers. And second, to ensure contributions were well managed, in funds run only to benefit members. 

Creating universal benefits 

When the Hawke Labor Government came to power in 1983, they made an agreement with the ACTU to create a universal super system so all Australian workers would benefit.  

This was largely achieved in 1992 when the Superannuation Guarantee passed legislation, and workers became entitled to minimum superannuation rates of 3%.  

By 2019, national super coverage increased to 78%, one of the highest in the world.² And today, this figure is over 90%.³  

How super fits into our retirement system

Australia’s retirement income system is made of three pillars: 

1. the Government Age Pension  

2. your personal savings and assets  

3. your super. 

While they all work together to provide a dignified retirement, the income mix will be different for everyone. 

The Age Pension is a publicly funded safety-net that supports basic living standards for Australians who qualify. Adding super is the nation’s policy response to ensure our retirement income system remains sustainable. 

The largest of the three pillars, super also provides national savings that drive investment, boosting everyone’s standard of living. 

Key principles of super

The Australian super system is designed around three key principles that make it one of the world’s leading retirement schemes:  

1. Universality means all Australian workers build retirement savings.  

2. Preservation ensures super stays invested until retirement.  

3. Compulsion guarantees super is paid automatically as a legal right. 

Other principles keeping super strong for over 17 million Australians include: 

Tax concessions – as a thank you from the government for leaving money in super until retirement, most super contributions and earnings are taxed at a flat rate of 15%, much less than the average national tax rate of 25%. 

Default funds – to ensure Australians receive the benefits of super regardless of their financial literacy, workers who do not choose a super fund must still receive employer contributions paid into a named default fund. 

MySuper products – all employer default funds must be MySuper compliant. This standardised super option provides a low-cost, low-risk product with a simple fee structure and investment strategy, safeguarding a fair deal for default fund members. 

Stapling – historically, super accounts were attached to the employer, not the worker. Today, your existing fund is ‘stapled’ to you so it follows you when you move jobs – reducing the chance of having multiple accounts and fees. 

Performance benchmarks – to ensure MySuper products are performing well for its members, they’re required to meet performance benchmarks set by the Australian Prudential Regulation Authority, or face being removed from the market. 

Equal representation model – under this model, the boards of many profit-to-member super funds (where profits go to members rather than shareholders) comprise an equal number of employer and worker representatives, keeping a focus on the best interests of members. 

No matter what your job, how long you work or what your financial understanding, super is designed to benefit all workers in retirement. The Super Members Council continues to work to ensure this great policy success story remains stable, effective, and fair for 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?
  Today, Australian super rates are 12% of your wage (as at 1 July 2025). This has increased incrementally over the years increasing your super balance. 
• Why was super created? 
  With an ageing population and many Australians relying on the Government Age Pension, super was created to ensure all workers build retirement savings, and to keep spending on the Age Pension sustainable.  
• Why is super taxed at a lower rate?
  The tax concessions on super are a thank you from the government for being required to leave your savings invested until retirement, and an incentive to save more. Once you reach retirement, you pay no tax on super at all. 
• Why are we forced to put money into super? 
  Before the modern super system was established, only 30% of Australians had retirement savings, and research consistently shows people prioritise short-term over long-term goals. Our super system is a policy response to this problem. 
• How much super could I have in retirement? 
  With current superannuation rates, the average Australian worker retires today with $200,000 in their super account, and in 30 years is likely to have about $500,000 (in today’s dollars). Those are life changing sums. 
• Why can’t I access my super before retirement? 
  Super is purposely designed to build retirement savings. By leaving savings in your account until then (and as Australian super rates rise), your balance is likely to grow – giving you the funds to provide a higher standard of living in retirement. 

References:
1. Australian Bureau of Statistics Year Book Australia 1974 
2. Australian Prudential Regulation Authority Superannuation Timeline 
3. Retirement Income Review – Final Report 

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.