Superannuation Explained: How Australia's Retirement System Works

Superannuation ("super") is Australia's compulsory retirement savings system — a percentage of your wages your employer must pay into a super fund on top of your salary, invested and locked away until you meet a condition of release, usually reaching retirement age.

The Super Guarantee rate: 12%, and staying there

Since 1 July 2025, employers must contribute 12% of Ordinary Time Earnings (OTE) to eligible employees' super funds. This is the final step of a long-planned, gradual increase from 9% — there are no further legislated increases scheduled, so 12% is expected to be the settled rate going forward.

Almost every employee is entitled to it

The old $450-per-month minimum earnings threshold — which used to exclude low-income and casual workers from receiving super at all — was abolished in 2022. Today, most employees over 18 are entitled to super regardless of how little they earn in a given period, and some under-18 employees qualify too if they work enough hours. Temporary visa holders working in Australia are also generally entitled.

It doesn't come out of your take-home pay

Unlike income tax, CPP, or CPF-style deductions, the Super Guarantee is paid on top of your salary — it's a cost to your employer, not a deduction from your paycheque (unless your employment contract specifically states your salary is "inclusive of super," which is common for some senior or contract roles, so it's worth checking).

Why super is tax-effective

Employer super contributions (and salary-sacrificed contributions) are taxed at a flat 15% inside the fund — regardless of your personal marginal tax rate. For most people earning above the lowest tax bracket, this is significantly lower than their marginal income tax rate would be, which is the core reason voluntary super contributions are a popular tax strategy.

There's a cap on the tax-effective contributions

The concessional contributions cap — covering employer contributions, salary sacrifice, and personal contributions you claim a deduction for — is $30,000 per financial year for 2025-26. Employer Super Guarantee payments count toward this cap first; a high earner on $200,000 receives $24,000 in mandatory SG, leaving only $6,000 of cap space for additional salary sacrifice before the concessional tax rate advantage disappears.

What changes from 1 July 2026: Payday Super

Currently, employers generally only need to pay super quarterly. From 1 July 2026, a reform called Payday Super requires employers to pay super at the same time as wages — on every payday, not just once a quarter. The earnings base also shifts from Ordinary Time Earnings to a broader measure called Qualifying Earnings, which includes some items OTE didn't, such as commissions earned entirely outside ordinary hours.

Super and your tax return

Employer super contributions don't appear as taxable income on your personal tax return — they're taxed inside the fund instead. If you make personal contributions and want to claim a tax deduction for them, you need to lodge a "notice of intent to claim" with your fund before you file your return or before you access the money, whichever comes first.