Superannuation 101
Superannuation refers to the retirement system in Australia that is designed to enable people to be financially self-sufficient in retirement, rather than rely on the Age Pension from Centrelink.
It is compulsory for employers to make superannuation contributions for their employees. Once an employee retires, usually after age 60, the superannuation system is designed to provide an income to live on. Superannuation is commonly referred to as "super."
Here are the 6 key parts of how super works in Australia:
1. Compulsory contributions: Employers are required by law to contribute a percentage of their employees' earnings into a super fund. This contribution is known as Superannuation Guarantee (SG) and is currently set at 11.5% of an employee's wages.
The following table shows what a person’s income and SG might look like in the 2025 financial year:
Pay Calculator is a great tool for understanding your super, tax and HECS-HELP payments.
2. Tax benefits: Super can reduce the amount of tax you would otherwise pay.
a) Compulsory contributions made by employers and tax-deductible voluntary contributions made by individuals are generally taxed at a concessional rate of 15% (up to 30% for high income earners [1]), which is lower than most people's marginal tax rate.
b) Investment earnings (for example, dividends from shares, rent from properties, and interest payments) are generally taxed at 15% in a super fund, but this tax can reduce to nil once you start drawing an income (a.k.a. a pension) from your super.
c) In the current financial year, the tax rates for individuals are as follows:
3. Voluntary contributions: Individuals can make voluntary contributions to their super funds. As indicated in the previous section, these can attract tax concessions (tax savings) if claimed as a tax deduction or paid as part of your salary package:
Voluntary contributions are tax free if no tax deduction is being claimed. They are taxed at a concessional rate (usually 15% but up to 30% for high income earners), where a tax deduction is being claimed, which is lower than the marginal tax rate for most individuals.
For example, if you are earning between $55,000 and $135,000 pa, $10,000 of your pre-tax income paid as salary/wages will result in paying tax to the government of $3,200 so you are left with $6,800 in your pocket. If you instead put that $10,000 into super and claim a tax deduction for that amount, tax of only $1,500 will be deducted from the $10,000. This means that you have $8,500 working for you in the super fund compared to $6,800 in your bank account (so you are 25% better off).
By making voluntary contributions to your super, you will increase the rate at which your super account grows and ultimately increase the amount available to pay you an income, which translates into more income to enjoy your retirement.
4. Investments and the magic of compounding: Super funds invest the money in your super account in a range of assets, such as shares, property and fixed interest. Super funds invest your super to grow over time so that, by the time you retire, your super balance should be worth much more than just what you invested, giving you more financial security. How the super fund will invest your super will typically depend on your investment choice or your age.
Most people will work on average for around 40 years which means that money invested can grow quite a lot over that time.
For example, making a one-off contribution of $10,000 into your super fund would result in the $10,000 being worth $47,086 after 40 years assuming it earns 4% pa. If you contributed $10,000 per annum into your super for 40 years at a rate of return of 4% pa, your $400,000 investment would be worth $969,260. The choice of investment strategy can make a large difference to the balance over time.
Using the above example, if the investments earned 5% pa instead of 4% pa, this would result in the $969,260 increasing to $1,238,198 after 40 years. Note, we have used investment returns of 4% pa instead of 7% pa to show the likely value in today’s dollars (net of inflation).
5. Accessing your super: Super is intended to provide income in retirement, so there are restrictions on when you can access the money in your super fund. Typically, you can only access your super after you reach preservation age (which is generally 60 years) and meet certain conditions [2].
There are a few circumstances when you are able access some or all of your super earlier. For example:
If you're unable to work or need to work fewer hours because of a medical condition.
If you can't meet your living expenses and have been receiving Commonwealth benefits (i.e. Centrelink) for 26 weeks.
To pay for unpaid expenses such as medical treatment, modifying your home or vehicle because of a severe disability, or a loan repayment to prevent you losing your home.
If you have a terminal illness or injury.
6. Retirement income: When you retire, you can access your super as a lump sum payment, regular income stream (known as a pension), or a combination of both.
Most commonly, individuals will receive an income stream in the form of a monthly payment. The more money you have in super before your retirement, the greater your income is likely to be during retirement.
According to the ATO, the average super balance at retirement age (60-64) for Australians in 2021 [3] was $402,838 for men and $318,203 for women. This super balance is expected to primarily sustain your living expenses for the rest of your life once you retire.
Generally, people who use a financial adviser, end up with more in their superannuation accounts. This is largely because financial advisers help with planning, making strategic contributions, more appropriate investment options, and tax-effective strategies.
As an example, Charlie, who retires at 60 with $1,000,000 in her super fund, expects to live for 25 more years. Her income in retirement should be around $70,000 pa ignoring Centrelink payments.
Alternatively, if Charlie had $1.5m in her super fund, her income should be around $105,000 pa (again, ignoring Centrelink payments).
Planning for the future is like setting sail for a specific destination, it generally leads to much better outcomes when you know which way you are going!
So, how does a Ballinger’s financial adviser help you and your super?
Other things we will do:
Provide you with complete and unbiased investment research
Provide you with personal investment analysis including performance reports
Encourage and facilitate a work/life balance and comfortable living in retirement
Serve as a human glossary for financial terms with the ability to explain them simply
Stay up to date on changes in the global and domestic investment world
Monitor your investments as the economy and markets change
Review your investments including in your superannuation fund
Guide you to think about areas of your financial life you may not have considered
Research possible alternatives that could meet your goals
Prepare a detailed, long term financial plan for you
Assist you in setting up and managing your superannuation to gain the most in your retirement
Ensure constant and transparent access to the balance of your accounts and investments
We encourage you to think about your financial future, and specifically how your super can help you to live the life you want.
If you would like to understand how you can make the most of your superannuation, please contact Ballinger’s here or call us on (02) 4927 0295.
This article does not take your specific needs or circumstances into consideration. You should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.