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What is superannuation and how does it work?

Superannuation is a compulsory system designed to build savings for your retirement. Knowing the ins and outs of super is important as it could play a big part in helping you live your dreams when you retire. Below we take a look at the basics of superannuation and how it works.

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4 minute read

Key takeaways:

  • Superannuation in Australia is a compulsory system to grow your savings for retirement
  • Employers are generally required to pay super guarantee (SG) contributions of at least 10% of each employee’s ordinary time earnings to their super fund
  • Generally employers must pay SG contributions for employees who earn $450 or more (before tax) in salary of wages during a calendar month and are 18 years or more
  • Employers are only required to pay SG contributions for employees less than 18 years who earn $450 or more (before tax) during a calendar year and work more than 30 hours per week

What is superannuation?

Superannuation, or super for short, is a compulsory system whereby a percentage of your earnings (along with any additional contributions you might elect to make) is placed into a super account to grow your savings for retirement. 

This money in your super account is pooled into a super fund along with other members’ money and invested on your behalf.

Since super is designed to help you grow your retirement nest egg, generally you can’t access your super until you retire; however, there are some exceptions. You can access your super savings:

  • When you reach preservation age and retire (your preservation age is based on the year you were born). Learn more about your preservation age.
  • When you turn 65, even if you haven’t retired
  • When you reach your preservation age even if you are still working using the transition to retirement strategy

There are limited other circumstances where you may be able to access your super, including due to medical conditions, financial hardship and in the case of the First home super saver scheme (FHSSS). Find out more about early access to super.

What are the benefits of super?

Aside from providing a lump sum and/or an income stream to help you live in retirement, one of the biggest benefits of super is that you generally pay less tax on your money that is invested in a super fund than money you invest outside of super. In particular:

  • Tax-free income when you retire
    • After you turn 60 and retire, you're typically able to access your superannuation without paying tax.
  • Pay less income tax
    • For example, with a salary sacrifice agreement with your employer, instead of paying the income tax rate you’d normally pay based on taxable income, your super contributions will be taxed just 15%.
  • Pay less tax on investment returns
    • When you invest outside of super, any income earned is taxed at your marginal tax rate. Within super, investment earnings on your super balance while your super is in an accumulation account are also generally taxed at 15%.

For more benefits, read our 12 benefits of super article.

How much super does an employer have to pay?

By law, employers are required to contribute at least 10% of employee’s ordinary time earnings into their super fund. This is known as the Super Guarantee contribution rate (SG).

The SG rate is set by the government and is currently legislated to increase to 12% from 1 July 2025, with annual increases of 0.5% a year.

Specifically, an employee is eligible to receive employer super contributions if they are:

  • 18 years old or over and earning $450 or more* (before tax) in a calendar month
  • Under 18 years old, earning $450 or more* (before tax) in a calendar month and working more than 30 hours per week. 

*In the 2021-22 Federal Budget, the government has proposed to remove the $450 monthly income threshold for SG contributions effective from 1 July 2022. Read more on our Federal Budget 2021-22 update page.

How can I check how much super my employer is paying me?

If you’re unsure how much super your employer is paying you, you can:

  • Check your payslip
  • Check your myGov account online
  • Check your super account online or by contacting your fund directly.

By law, employers are only required to pay super into your account once a quarter, although some choose to pay more often, such as with every pay cycle. It’s best to speak to your employer directly if you have any questions or concerns.

For more information, you can visit our superannuation page. And if you’re not already with Sunsuper but are ready to make the switch, you can join online in just a few minutes.

Before joining Sunsuper, consider the potential loss of insurance and other benefits that you may have in your other funds. The information contained on this website is general information only and does not take into account your individual objectives, financial circumstances or needs. You should consider your own objectives, financial circumstances and needs, before making a decision about the financial product. You should consider the Product Disclosure Statement before deciding whether to acquire, or continue to hold the product. For more information or financial advice from Sunsuper, call us on 13 11 84.

Join Sunsuper online in just a few minutes.