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Superannuation and the guarantee rate: Here’s how superannuation works in Australia

Superannuation is a way to save for retirement and is compulsory in Australia. Learn how it works in this guide.

Superannuation is the main way of saving for retirement, and is compulsory in Australia. In the past, people relied on their personal savings in retirement as well as a government support.

What is superannuation?

Superannuation is money that's invested throughout your working life which you can access when you're retired from the workforce, to fund your lifestyle. Superannuation comes with special tax benefits, and is a way of minimising the number of Australians relying on the aged pension in retirement.

The superannuation guarantee rate

The superannuation guarantee rate is the amount of money Australian employers are required to pay all employees towards their superannuation. The current super guarantee is 9.5% of what you earn annually, and this is set to increase gradually over the new few years. This means that your employer must pay at least 9.5% of what you earn into your nominated super fund (they can pay more). Because the super guarantee is a percentage of your earnings this means the more you earn, the more super you'll be paid by your employer.

The superannuation guarantee rate

The superannuation guarantee rate will remain 9.5% until 30th June 2021, after which it will increase to 10% and eventually increase to 12% in July 2025.

What is a superannuation fund?

A super fund is where your superannuation savings are paid into. This includes the super guarantee paid by your employer and any contributions you make yourself. You can choose your own super fund when you first enter the workforce. If you don't elect your own fund, you'll receive your employer's default fund. Your superannuation fund will take the money paid into the fund and invest it on your behalf in a range of shares, property, cash and other assets.

Compare Australian super funds

Name Product Past 1 Year Performance Past 3 Year Performance Past 5 Year Performance Calculated fees on $50,000 Insurance Included
10.70%
8.61%
9.84%
$553.00
Death, TPD
Earn a Retirement Bonus of up to $4,800 when you open a new Income account. T&Cs apply.
10.62%
New fund
New fund
$348.00
Death, TPD
Earn Velocity Frequent Flyer Points for making contributions to your super. T&Cs apply.
N/A
N/A
N/A
$683.00
Death, TPD, Income Protection
Choose between 14 different investment options, including a socially responsible option.
11.08%
9.30%
10.51%
$421.76
Death, TPD, Income Protection
Enjoy discounted rates on banking products with ME Bank and health cover with GMHBA health insurance.
9.63%
7.84%
8.88%
$535.00
Death, TPD, Income Protection
Socially responsible and ethical investment options available.
7.57%
8.08%
N/A
$450.00
Death, TPD
Pay no entry, exit or switching fees and enjoy a range of different investment options with QSuper.
10.57%
8.12%
9.51%
$573.53
Death, TPD, Income Protection
Get access to one-on-one professional advice at no additional cost.
6.70%
6.26%
7.52%
$662.00
Death, TPD, Income Protection
Choose investment options that align with your personal values.
11.43%
7.73%
8.76%
$703.00
Death, TPD
Access offers, deals and discounts through the BT Super Benefits Now program.
10.95%
9.39%
10.41%
$565.00
Death, TPD, Income Protection
Enjoy discounted health insurance with HCF.
8.79%
8.51%
9.59%
$646.76
Death, TPD
Get fee-free advice on your superannuation as a BUSSQ member. T&Cs apply.
7.41%
6.24%
7.89%
$601.76
Death, TPD
Receive a complimentary financial planning session with a Suncorp financial planner.
12.50%
10.17%
11.02%
$621.76
Death, TPD, Salary Continuance
Enjoy discounted rates on banking products with ME Bank.
9.39%
8.60%
9.93%
$535.88
Death, TPD
Access simple personal advice at no cost.
8.14%
6.50%
N/A
$703.00
Death, TPD
Gain access to lifestyle offers and benefits on NAB financial products and services.
8.76%
7.14%
8.81%
$497.60
Death, TPD, Income Protection
Earn rewards and vouchers through the AIA Vitality program.
10.45%
8.61%
10.14%
$361.00
Death, TPD, Income Protection
A flexible industry super fund for people who work in Australia’s higher education and research sector.

Compare up to 4 providers

The information in the table is based on data provided by Chant West Pty Ltd (AFSL 255320) which is itself supplied by third parties. While such information is believed to be accurate, Chant West does not accept responsibility for any inaccuracy in such information. Chant West’s Financial Services Guide is available at https://www.chantwest.com.au/financial-services-guide . Finder offers no guarantees or warranties about the data and we recommend that users make their own enquiries before relying on this information. Performance, fees and insurance data is based on each fund's default MySuper product. Where the performance, fees and insurance data for the MySuper fund vary according to the member's age, results for individuals between 40-49 years of age have been shown. Past performance is not a reliable indicator of future performance.

Who pays superannuation in Australia?

All Australian employers are required to pay the super guarantee to their employees. Employers need to pay super into their employee's nominated fund at least four times a year. Australians who are self-employed generally are not required by law to pay themselves super, but it’s definitely a wise idea to do so.

There are a few situations where employees are not legally required to pay superannuation, including:

  • If the employee earns less than $450 a month
  • If the employee is under 18 and works less than 30 hours per week
  • If the employee is not an Australian resident and completes the work outside of Australia

Superannuation has a number of benefits

As well as helping fund your lifestyle when you're no longer working, superannuation has a number of additional benefits.

  • You can access cheaper insurance such as life, disability and income protection cover through your super
  • Superannuation is taxed at a lower rate (15%) during the accumulation phase
  • You can choose how you'd like your super to be invested based on your personal values and appetite to risk
  • You can contribute more money to your super to take advantage of the special tax benefits
  • when you retire, you can elect to receive your super in one lump sum payment or in stages

To sum up, superannuation works in the following way:

  • Your employer makes compulsory contributions on your behalf (currently 9.5% of your gross salary) into a super fund that you or your employer nominate.
  • You have the option of making your own contributions as well, and the government may also contribute if you are a low or middle-income earner.
  • Your superannuation fund invests the money on your behalf and it grows steadily over many years, accelerating in the last few years when the sum is greater.
  • You retire from working life and access your super, either in the form of a lump sum payment or as a regular income stream.

Superannuation is very important

Having inadequate funding for your retirement will not only affect your ability to do the things that you always dreamed of doing when you retire, such as travelling, but it can also affect your ability to do basic and necessary things such as paying the bills, buying food and paying day to day living costs. Whilst saving towards your retirement may not seem like an important issue when you are in your twenties or thirties, time quickly passes and many people who think this way suddenly find themselves approaching retirement age with no funding plans in place. This could leave you facing several very bleak decades, with loads of time on your hands but no money to enjoy it.

By ensuring that you focus on saving towards your retirement from a younger age, you can rest easy in the knowledge that the time you have available after retiring from work can be spent relaxing, enjoying life and achieving your goals.

Need some tips to help you choose a super fund? Check out our guide on how to choose a super fund here.

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