Superannuation

Super is a defined contribution system: your balance is what went in plus what the investments earned, not a promised benefit. It works in three stages.

Money goes in. Your employer must pay the superannuation guarantee, 12% of your earnings since 1 July 2025, into your fund on top of your salary. From 1 July 2026, under Payday Super, it is paid with each payday instead of quarterly. You can add your own money, before tax through salary sacrifice or after tax from savings.

The fund invests it. Most people belong to an industry, retail or public-sector fund; others run a self-managed super fund (SMSF). Because contributions and earnings are taxed at concessional rates, compound growth happens inside a low-tax wrapper.

Money comes out, generally only after a condition of release such as retiring after 60, as a lump sum, an account-based pension paying a regular income, or both.

Super is separate from the Age Pension, the means-tested government pension paid from 67, though a larger super balance can reduce what the Age Pension pays.

Contributions fall into two groups, each with its own cap. Every fund you belong to counts toward the same caps, and the financial year runs from 1 July to 30 June.

Concessional contributions come from before-tax income: your employer’s guarantee payments, salary sacrifice and personal contributions you claim as a tax deduction. The fund pays 15% tax on them as they arrive, usually well below your marginal tax rate. Non-concessional contributions come from money that has already been taxed, so they are not taxed again on the way in.

Inside the fund, earnings during the accumulation phase are taxed at up to 15%, and a complying fund gets a one-third discount on capital gains from assets held at least 12 months. Those low rates are why the caps exist.

Super is preserved: the law keeps it in the fund until you meet a condition of release. Your preservation age is 60 if you were born on or after 1 July 1964, which covers everyone reaching it now.

Early access is allowed only on narrow grounds: medical, compassionate, severe financial hardship or incapacity grounds, including terminal illness; the First Home Super Saver scheme for voluntary contributions; very small balances; and temporary residents leaving Australia. Schemes promising early access for any other reason are illegal.

For early retirement this is the central constraint: someone stopping work at 50 needs shares or savings outside super to cover the years until 60, much as Americans bridge the years before 59½ to avoid the 10% early withdrawal tax.

Once you meet a condition of release, you can move super into the retirement phase by starting an account-based pension. Earnings on the money backing it become tax-free, and from 60, pension payments and lump sums from a taxed fund are not assessable income, so they add nothing to your taxable income. Some public-sector schemes pay an untaxed element; paid as a pension from 60, it is taxed at your marginal rate with a 10% offset.

Two limits apply. The transfer balance cap limits how much you can move into the tax-free retirement phase over your lifetime: the general cap is $2.1 million from 1 July 2026, up from $2 million. Money above it can stay in an accumulation account, where earnings are still taxed. And each year you must draw at least a minimum share of the pension balance: 4% under 65, 5% at 65–74, 6% at 75–79, 7% at 80–84, 9% at 85–89, 11% at 90–94 and 14% from 95. It works like a required minimum distribution, with no maximum outside a transition to retirement pension.

A fund in retirement phase still has franking credits on its Australian shares refunded, even though it pays no tax on that income. The main exception to tax-free super is a death benefit paid to a non-dependant, such as an adult child.

For American readers, super is closest to a 401(k), but the tax falls at different stages. A traditional 401(k) taxes nothing going in or while invested, then taxes withdrawals as ordinary income. Super taxes a little at each of the first two stages, 15% on concessional contributions and up to 15% on earnings, then usually nothing at the end. A Roth IRA taxes everything up front.

Employer contributions to super are also compulsory, so most Australian workers build a balance without opting in, while a 401(k) depends on electing to defer pay. And super’s required withdrawals begin only when you start a pension, not at a set age like RMDs at 73 or 75. Canada’s RRSP and the UK’s SIPP follow the American pattern of relief going in and tax coming out.