What is Superannuation?

How super actually works

Every payday, your employer is legally required to pay a percentage of your ordinary earnings into a super fund of your choice, on top of your salary, not out of it. That's called the Super Guarantee (SG), and it currently sits at 12%. The fund invests that money, usually in a mix of shares, property, bonds and cash, and it compounds for decades until you retire. It's not optional and it's not something you can substitute with a personal savings account, it's baked into how Australian employment works.

From 1 July 2026, most employers must pay SG contributions each payday rather than quarterly, and your fund needs to receive it within a handful of business days. Called "payday super", it's meant to stop unpaid super sitting with employers for months and gives you a clearer, near real-time picture of your balance.

Why the tax treatment is the whole point

The reason people salary sacrifice extra into super rather than just saving in a bank account is tax. Contributions your employer makes, plus anything you salary sacrifice, are taxed at a flat 15% inside the fund, regardless of your income. Compare that to your marginal tax rate outside super, which can run up to 45% plus the Medicare levy. Investment earnings inside the fund are also taxed at a maximum of 15% while you're building your balance, and once you move money into a retirement income stream (up to the transfer balance cap), earnings on that portion become tax-free.

If your income is $37,000 or less, the government effectively refunds the 15% contributions tax through the Low Income Super Tax Offset (LISTO), up to $500 paid straight into your account. You don't need to apply, it's calculated automatically when you lodge your tax return.

How much you can put in

There are yearly caps on how much you can contribute at the concessional (before-tax) tax rate. Concessional contributions cover your employer's SG, anything you salary sacrifice, and personal contributions you claim as a deduction, all combined. Non-concessional contributions are after-tax money you add from savings, no deduction, but the fund still only taxes the earnings at 15%.

These caps are indexed and move most years, so treat the figures below as a snapshot rather than gospel, and check ato.gov.au before relying on them for a real decision.

• Concessional (before-tax) cap: $32,500 for 2026-27
• Non-concessional (after-tax) cap: $130,000 for 2026-27
• Transfer balance cap (the most you can move into the tax-free retirement phase): $2.1 million for 2026-27

If you haven't used your full concessional cap in a previous year and your total super balance was under $500,000 at the last 30 June, you may be able to carry forward the unused amount for up to five years. Go over a cap and the excess generally gets added back to your assessable income and taxed at your marginal rate, with an offset for the 15% already paid, so it's not usually catastrophic, but it is extra paperwork worth avoiding.

Division 296: the new tax on very large balances

Division 296 is an additional tax that applies to people with a total superannuation balance above $3 million, across all their funds. The legislation passed both houses of federal parliament in March 2026 and commenced from 1 July 2026, so it's now in effect. In its final form it taxes realised earnings, not unrealised paper gains, an important change from the version originally proposed. An extra 15% applies to the portion of your earnings attributable to the slice of your balance between $3 million and $10 million (a 30% effective rate on that portion), and a further 10% on top applies above $10 million (40% effective). It's a member-level tax based on your personal balance, not something that touches an ordinary fund or an ordinary balance, so it affects a small number of Australians. If you're anywhere near the $3 million threshold, it's worth a conversation with an accountant, some of the finer administrative detail was still being finalised by the ATO after the law passed.

Types of super funds

Not all funds are the same, and fees and performance can vary enough to change your retirement outcome by tens of thousands of dollars. The broad categories are industry funds (run for members, not profit), retail funds (run by financial institutions), corporate funds (employer-specific), and self-managed super funds, where you run the fund yourself with up to six members and take on the compliance responsibility that comes with it. Worth a look at least once a year: your fund's fees compared to a couple of alternatives.

When you can actually access it

Your super is preserved, meaning locked away until you meet a condition of release. For anyone born on or after 1 July 1964, preservation age is 60. Once you reach 60 and retire, or turn 65 regardless of work status, you can access it tax-free. There are limited earlier-access grounds too, like severe financial hardship, terminal illness, or a first home deposit through the First Home Super Saver Scheme.

A few myths worth clearing up

"It's locked away forever" isn't true, you can access it from 60 in normal circumstances, and earlier in specific hardship cases. "The employer contribution is enough" often isn't, especially with career breaks or part-time stretches, which is why voluntary contributions matter for a lot of people. And "all funds are basically the same" is wrong too, a fund charging 1.5% in fees against one charging 0.5% can cost a genuinely large amount over a 30-year career.