What is superannuation in Australia?

The basics of superannuation

The Australian superannuation system was introduced in the 1990s to reduce reliance on the age pension and encourage working Australians to save for their retirement. 

Employers are required to contribute a minimum of 10% (this will progressively increase up to 12% by 1 July 2025) of an employee’s income to a superannuation account. This is known as your ‘superannuation guarantee’ (SG).

In most circumstances your employer will pay you super if you’re:

  • 18 or over, and are paid $450 or more (before tax) in a calendar month, or
  • under 18, being paid $450 or more (before tax) in a calendar month and work more than 30 hours in a week.

Note: From 1 July 2022 the $450 threshold is removed.

This applies whether you work casual, part-time or full-time hours, and even if you’re a temporary resident.

For more information on super contributions and employer requirements go to Superannuation Guarantee contributions.

Why superannuation is compulsory

In 1992 the Australian Government made superannuation compulsory for most employed Australians to help them save for retirement.

Employers are required to make regular contributions into employee's super accounts. The policy was introduced due to concerns that the government age-pension payments would overwhelm the country’s economy unless there was a system to encourage higher retirement savings.

By coupling consistent contributions with strategic investment choices and compound interest, your super can grow significantly over many years.

How superannuation works

Once contributions are received, your super fund then invests your money in assets like shares and property to help grow your balance over time. The amount of super you’ll end up with when you retire depends on several factors, including how much you contributed, how long you’ve been contributing for, your investment returns, and the amount of fees you pay.

In addition to employer contributions, you can also make additional contributions into your super account. Although there are a number of different contributions you can make, they are typically classed as concessional or non-concessional.

Concessional contributions come out of pre-tax pay and usually are taxed at just 15%, which is much lower than the marginal rate of tax for most employees. Non-concessional contributions are made from your after-tax pay, with no further taxes being applied. Both of these contribution types have limits on how much you can contribute each financial year – these are known as contribution caps.

Superannuation is designed to fund your retirement, so it’s important to remember you can only withdraw your super when you meet a condition of release, such as turning 65, reaching preservation age and retiring, or under the transition-to-retirement rules while you continue to work.

As well as being a vehicle to save for your retirement, insurance cover usually sits within your super, and it’s important to know what it is.

The cover could include life insurance, income protection or disability cover to help if you pass away or become disabled and are unable to work.

The cost of superannuation

All superannuation funds can charge a range of fees for management of the fund and investments. If applicable, fees are regularly deducted from your account balance depending on the particular investment or service. As the amount of fees charged can impact your balance over time it’s important to understand and check the fees you’re paying.

For further information on fees, please see Understanding your Mercer Super Trust fees.

Changes in superannuation

Superannuation rules are consistently changing. To help bring you up to speed on some of the more recent and significant changes we’ve worked with Sai Ahlawat, Head of Trustee Adviser Services from Mercer Financial Advice to prepare the video below.

Disclaimer: This document has been prepared and sent on behalf of Mercer Superannuation (Australia) Limited (‘Mercer Super’), ABN 79 004 717 533, Australian Financial Services Licence #235906, the trustee of the Mercer Super Trust ABN 19 905 422 981. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances. Please consider the Product Disclosure Statement, Product Guide, Insurance Guide, and Financial Services Guide before making a decision about the product, or seek professional advice from a licensed, or appropriately authorised financial adviser if you are unsure of what action to take. 'MERCER' is a registered trademark of Mercer.