Superannuation is like an investment account for your future self – the ultimate nest egg. It’s something to support us during retirement, and something to count on. It can also provide a tax-effective way to save for your retirement – we’ll explain more on that later.

In Australia, we currently have $3.3 trillion invested in our superannuation system, making us the world’s fifth-largest pension market in the world.

But what actually is superannuation?

Superannuation – a brief history 

Superannuation might seem like it’s been around a lifetime but in reality, it’s still relatively new in Australia. The system we now know began in Australia during the 1980s. At that time it was generally limited to public servants and white-collar employees of large corporations.

Compulsory superannuation as we know it today was introduced by the Keating Government in 1992 to help support the welfare system. Before compulsory superannuation, people in retirement generally relied on the age pension for support, but the Government foresaw a big problem. People started living longer, and the population was booming, so when it came time for the working population to retire, the Government knew the current welfare system wouldn’t cope. That’s why compulsory superannuation was introduced.

Today, it’s vital that the Government safeguards the superannuation system to ensure that as many Australians as possible can support themselves when they retire.

So, we’ve all got the same agenda – a good superannuation system means you’re more likely to be self-funded in your retirement and the Government has less pressure to support the population. 

What is superannuation and how does it work?

Much like the money in your bank account, superannuation is your hard-earned money. The money doesn’t belong to your employer or the Government – it is your asset and yours to invest through a super fund that you feel confident in. It’s money to live off when you retire and for many of us, our super is also the largest savings fund we’ll ever have.

The Government has rules that require your employer, in most circumstances, to pay a percentage of your earnings into your super account. You’re also generally able to make voluntary contributions to your superannuation. Your super fund’s job is then to invest that money until you’re ready to retire. 

Even though it’s your money, you can generally only withdraw money from your super in certain circumstances: these include when you retire on or after your preservation age; when you turn 65; if you’re suffering financial hardship; or if you have specific medical conditions or meet other compassionate grounds conditions. 

Superannuation needs to be paid at least four times a year by your employer. It is intended to grow over time through investment earnings and compound interest.

Who is eligible for super?

Generally, your employer must pay you super if you’re:

1. 18-years-old or over
   2. Under 18-years-old and working more than 30-hours a week.  

Note: You’re entitled to super if you work casually, part-time or full-time, and if you are a temporary resident. If you’re a low or middle-income earner, you might be eligible a tax-offset from the Government.

If you’re self-employed, it’s up to you to sort out your own super, which can feel like an intimidating process, but it doesn’t need to be. Finding the right super fund for your needs is an important first step, as is starting with small regular payments to maximise compound interest. 

How is super calculated?

Compulsory super contributions are calculated simply by multiplying your pre-tax salary or wages by 10.5%. This is known as Superannuation Guarantee (SG) and it’s the minimum amount your employer must pay into your super.

The SG is currently set to rise to 12% by July 2025.

How do I find lost or unpaid super?

If you suspect you have any lost super (i.e. if you suspect you have a super fund you have forgotten about), you can log into your MyGov account to locate it. Your super fund should also be able to support you to consolidate any lost or inactive accounts you find into your current account.  

Consolidating your super accounts can help you to keep track of your retirement savings and may help you to avoid multiple sets of fees. It’s important to consider the impact of any loss of insurance cover or other benefits before closing any super fund accounts you may have.

It’s very important to check that your employer is regularly paying you super. Just because a superannuation amount is listed on your pay slip doesn’t mean that this amount is actually being paid into your super account. Sadly, it’s all too common for people to miss out on significant super payments if the business they work for goes bankrupt and has not paid them super for some time.

If you think your employer isn’t paying you super, the Australian Taxation Office (ATO) advises taking a range of steps including: 

1. Confirm you’reeligible for super
   2. Log into yourMyGov account and view the super contributions that have been paid into your super fund by your employer.
   3. Use the estimate my super tool
   4. Ask your employer how often they’re paying you super, and which fund they’re paying into
   5. Login to your fund’s member portal where you should be able to see your transaction history
   6. Check your superannuation member statements to confirm how much your super fund has received
   7. If you’ve done all that, you can report your employer using the ATO’s online tool 

What do super funds do with your money?

Once your money is sitting in your superannuation fund, it’s invested into different assets. The main assets super funds invest in include: shares, property, cash, bonds and other fixed-interest investments, private equity, and infrastructure.

Assets are normally divided into two groups: growth or defensive assets. Growth assets are expected to provide growth over the long term and tend to be at higher risk or short-term fluctuations. Defensive investments tend to be lower-risk and historically produce lower returns over the long term.

How much super do you need?

Working out how much super you need can feel like a guessing game. If you’re 30, how do you know how much money you’ll need when you’re 65? It also depends on how you’d like to live when you’re older and your future costs in retirement.

There isn’t a ‘magic number’ (spoiler!) for how much super you’ll need, but there are some useful ways to calculate how much you might need to live comfortably in retirement.

As a rough guide, the Association of Superannuation Funds of Australia (ASFA) estimates a single person will need around $928 a week ($48,266) a year   to live comfortably. As a couple, ASFA says you’ll need around $1,300 a week ($68,014 a year) to live comfortably. 

We dive into the $1 million myth here and debunk how much money you really need for retirement. 

How do I increase my super?

As well as the money your employer pays into your super account, you can grow your super by making your own (personal) contributions to your account.  

You may be able to ‘salary sacrifice’, which is a way to potentially minimise tax payable on your income as you do not pay income tax on the amount of your salary that goes into your super fund. However, your super fund will deduct 15% of that in contribution tax. You can also contribute to super from your after-tax income and may be able to claim tax back from these contributions in your tax return. For advice that takes in to your personal financial objectives, situation and needs, we recommend you speak to a professional adviser. 

You can also do what’s called ‘contribution splitting’, where before-tax contributions, like superannuation payments made by your partner’s employer, are directly transferred from your partner’s super account into yours. Your partner is effectively splitting their super with you.

It’s important to be mindful that there are limits or ‘caps’ on the amount you can contribute to your super each financial year without paying additional tax. If you’re planning to contribute more than $27,500 (for the 2022/23 financial year) to your super (including your employer contributions) in any one financial year — you should seek professional advice.