• Tax Advice
  • Tax Guides

What is A Superannuation? [Explained]

Superannuation, or simply “super,” is a financial arrangement primarily used in Australia to help individuals save for their retirement. It’s a mandatory and tax-efficient system designed to ensure that people have enough financial resources to support themselves when they stop working.

  • The Australian Taxation Office reported approximately $3.4 trillion total superannuation assets in Australia by December 2022. [Source]
  • As of February 7, 2023, Australia has a total of 23.2 million superannuation accounts.

These accounts collectively hold assets under management exceeding $3.3 trillion, according to the latest statistics from the Association of Superannuation Funds of Australia (ASFA). [Source]

Table of Contents hide

Superannuation are Mandatory Retirement Savings

Superannuation is compulsory for most working Australians. Employers are required to contribute a portion of their employees’ earnings into a superannuation fund. This contribution, known as the Superannuation Guarantee, is currently set at 10% of an employee’s salary, but it can vary with government policies.

Example: If you earn $50,000 per year, your employer must contribute $5,000 (10%) to your superannuation fund on your behalf.

Superannuations as Investment Vehicle

Superannuation funds pool the contributions from multiple individuals and invest these funds in a wide range of assets such as stocks, bonds, real estate, and more. These investments aim to generate returns and grow the fund over time.

Suggested Read: Investment Property Tax Deductions in Australia Explained

SuperAnnuation Tax Benefits

Superannuation offers significant tax advantages. Contributions made by both employers and employees are generally taxed at a lower rate compared to regular income tax. Additionally, investment earnings within the superannuation fund are also taxed at a concessional rate.

Example: If you earn $60,000 per year and contribute $5,000 to your super, you will only pay income tax on $55,000, not the full $60,000.


    Join our Newsletter

    Subscribe to our weekly newsletter to stay up to date on Tax related information.

    Superannuation Retirement Benefits

    When you reach your preservation age and retire, you can access your superannuation savings tax-free. You can choose to receive your savings as a lump sum, a regular income stream (known as an annuity), or a combination of both.

    • Lump Sum

    You can choose to withdraw your superannuation savings as a lump sum. This allows you to access the entire balance at once. This lump sum is typically tax-free once you reach the preservation age.

    • Regular Income Stream

    Alternatively, you can convert your superannuation savings into a regular income stream, often referred to as an annuity. This provides you with a steady income during your retirement years.

    • Combination

    Many individuals opt for a combination of both lump sum and regular income to meet their specific retirement needs.

    Tax Treatment of Retirement Benefits

    The tax treatment of your superannuation benefits depends on your age, the amount withdrawn, and how you receive it. Generally, benefits received after the age of 60 are tax-free.

    Example: If you retire at 65 and choose to receive a regular income stream from your super, the income you receive is typically tax-free.

    Suggested Read: Understanding Tax Returns in Australia: In-Depth Overview

    Government Age Pension

    In addition to superannuation benefits, the Australian government offers the Age Pension, which provides financial support to eligible retirees. The Age Pension complements superannuation and ensures a basic level of income for retirees.

    Superannuation Savings are Accessible After You Reach a Preservation Age

    You cannot access your superannuation savings until you reach your preservation age, which varies depending on your date of birth. As of my knowledge cutoff in September 2021, the preservation age ranged from 55 to 60 years.

    Superannuation as a Form of Low-Income Government Support

    The Australian government provides some financial assistance to low-income earners and those with certain disabilities through programs like the Low Income Superannuation Contribution (LISC) and the Superannuation Co-contribution.

    3 Types of Superannuation

    1. Industry Superannuation Funds

    • Established by employer associations and unions.
    • Typically cater to specific industries (e.g., healthcare, education).
    • Generally characterized by lower fees compared to retail funds.
    • May offer industry-specific benefits and services.
    • Governed by trustees, including employee and employer representatives.

    2. Retail Superannuation Funds

    • Offered by financial institutions and available to the general public.
    • Provide a wide range of investment options.
    • May have higher fees compared to industry funds.
    • May offer additional services like financial advice and insurance.
    • Governed by the financial institution providing the fund.

    3. Self-Managed Superannuation Funds (SMSFs)

    • Established and managed by individuals or small groups (up to four members) for their own retirement savings.
    • Provide a high level of control over investment choices.
    • Allow for a wide range of investments, including property and direct shares.
    • Require compliance with strict regulatory and reporting requirements.
    • Trustees (members) are responsible for fund management and compliance.

    Self-Managed SuperAnnuation Funds are Further Divided into Following Types

    i.  Individual SMSF

    An individual manages their own SMSF, making all decisions.

    Example: John sets up an SMSF, where he is the sole member and trustee, giving him full control over investments.

    ii. Family SMSF

    Multiple family members, like spouses or parents and children, collectively run an SMSF.

    Example: The Smith family establishes an SMSF, with John, his wife Mary, and their adult children as members and trustees.

    iii. Corporate Trustee SMSF

    A company acts as the trustee, and members become directors of this company, offering asset protection benefits.

    Example: Smith & Co. Pty Ltd serves as the trustee of the Smith family’s SMSF, with John, Mary, and their children as directors.

    iv. Single-Member SMSF

    A single individual can set up an SMSF but must appoint a second trustee, either a person or a company.

    Example: Sarah creates an SMSF as the sole member but appoints her brother as the second trustee.

    v. Related Party SMSF

    SMSFs can invest in assets where related parties have an interest, with strict rules to prevent conflicts.

    Example: John’s SMSF purchases a property from his brother at market value, ensuring compliance with related party rules.

    vi. Bare Trust SMSF

    Used when SMSFs acquire property with borrowed funds; a separate bare trust holds the property until the loan is repaid.

    Example: Jane’s SMSF borrows to purchase a commercial property, and a bare trust temporarily holds legal ownership until the loan is cleared.

    vii. Small APRA SMSF (SAF)

    Regulated by APRA, SAFs are for a small number of members, offering an alternative to standard SMSFs.

    Example: A group of three friends creates an SAF for pooling investments.

    viii. Pension SMSF

    SMSFs established mainly for providing regular pension income to members in retirement.

    Example: Susan’s SMSF focuses on distributing monthly pension payments to her during her retirement years.

    ix. Investment-Specific SMSF

    Some SMSFs are tailored for specific investment objectives, like focusing on a particular asset class or industry.

    Example: An SMSF is established to exclusively invest in residential real estate properties.

    x. Legacy SMSF

    These SMSFs may have unique structures due to historical reasons, such as changes in superannuation laws.

    Example: An SMSF created years ago with specific investment holdings due to previous regulations.

    Different Types of Superannuation Contributions

    1. Concessional Contributions

    Concessional contributions are made from pre-tax income and are taxed at a concessional rate within the superannuation fund.

    Examples are employer contributions (Superannuation Guarantee) and salary sacrifice contributions made by you or your employer.

    2. Non-Concessional Contributions

    Non-concessional contributions are made from after-tax income and are not taxed within the superannuation fund.

    Examples are personal contributions from your take-home pay or contributions from your spouse.

    3. Government Co-contributions

    Government co-contributions are contributions made by the government into your superannuation account to assist lower-income earners in saving for retirement.

    Example: If you earn a low income and make personal after-tax contributions to your super, the government may match a portion of your contributions, up to certain limits.

    4. Spouse Contributions

    Spouse contributions involve one spouse contributing to the superannuation account of their spouse.

    Example: A working spouse may contribute to their non-working or low-income-earning spouse’s super account to boost their retirement savings. Spouse contributions can also provide tax offsets.

    5. Inheritance Contributions

    In some cases, superannuation can be funded through inheritance, where the beneficiary receives a lump sum or income stream from a deceased family member’s super account.

    Example: If you inherit your parent’s superannuation, you can choose to take it as a lump sum or as a pension, depending on your financial needs and circumstances.

    6. Downsizer Contributions

    Downsizer contributions allow individuals aged 65 and older to make a one-time contribution of up to $300,000 each from the proceeds of selling their primary residence into their superannuation fund.

    Example: If you sell your family home after reaching the age of 65, you can make a downsizer contribution to your superannuation to increase your retirement savings.

    7. Government Initiatives and Special Contributions

    Occasionally, the government introduces special initiatives or programs to encourage superannuation contributions, such as the First Home Super Saver Scheme (FHSSS) or the Low Income Superannuation Tax Offset (LISTO).

    Example: Under the FHSSS, individuals can make extra voluntary contributions to their superannuation to save for their first home. These contributions receive tax benefits.

    Pro Tips to Look After Your Superannuation

    Here are some expert tips to look after your super funds:

    Set Clear Retirement Goals

    Clearly define your retirement goals and desired lifestyle to determine how much you need in your superannuation. Having specific targets will help you stay focused on building an adequate nest egg.

    Example: If your goal is to retire comfortably with an annual income of $60,000, calculate how much you’ll need in your superannuation to achieve this goal.

    Regularly Review Your Super Statements

    Make it a habit to review your superannuation statements. Check for errors, ensure contributions are accurate, and monitor the performance of your investments.

    Example: By regularly reviewing your statements, you may notice discrepancies and correct them promptly, ensuring that your super is growing as expected.

    Consider Salary Sacrifice

    Explore salary sacrificing, which allows you to contribute a portion of your pre-tax income to your superannuation. This can reduce your taxable income while increasing your retirement savings.

    Example: If you earn $80,000 annually and salary sacrifice $10,000 into your super, you’ll only be taxed on $70,000, potentially lowering your tax liability.

    Benefit From Government Co-contributions

    If eligible, make personal contributions to your super to qualify for government co-contributions. The government may match part of your contributions, boosting your retirement savings.

    Example: By contributing $1,000 to your superannuation, you could receive a government co-contribution of up to $500, depending on your income.

    Diversify Your Investment Portfolio

    Diversification is key to managing risk. Invest your superannuation across a range of asset classes (e.g., stocks, bonds, property) to reduce exposure to market volatility.

    Example: Instead of putting all your super funds into a single stock, consider diversifying into various assets to spread risk.

    Monitor Investment Performance

    Regularly assess the performance of your superannuation investments. If certain assets consistently underperform, consider adjusting your portfolio.

    Example: If your super fund’s shares in a particular industry consistently perform poorly, you may decide to reduce your exposure to that industry.

    Consolidate Multiple Superannuation Accounts

    Avoid paying unnecessary fees by consolidating multiple superannuation accounts into one fund. This can simplify management and potentially save you money.

    Example: If you have multiple super accounts from previous jobs, consider rolling them into your current fund to reduce fees and streamline your investments.

    Track ATO Guidelines

    Keep yourself updated on changes in superannuation laws and regulations. This ensures you remain compliant and can take advantage of any new opportunities or benefits.

    Seek Professional Advice When Needed

    Don’t hesitate to consult a financial advisor or tax expert, especially for complex decisions or when major life events (like marriage or divorce) affect your financial situation.


      Join the Waitlist

      Our mobile app is currently under development but we’ve created a waitlist to let you know as soon as it comes out.

      For Example: If you’re planning to retire early or have unique financial circumstances, seeking professional guidance can help you make informed choices.

      Review Your Insurance Coverage

      Regularly assess your insurance coverage within your super. Ensure it aligns with your current needs and circumstances, making necessary adjustments.

      For Example: After having children, you may decide to increase your life insurance coverage to provide for your family in case of unforeseen events.

      The Bottomline

      Superannuation is key to retirement savings for Australians. It offers tax benefits and investment options to employer’s reliance on government pensions after retirement. Super funds offer you financial security in old age.

      Explore More Topics

      • Jaxon Rylah

        Jaxon Rylah, an Australian of diverse heritage, brings a wealth of expertise to his role as an Author at Taxly.ai. With over 5 years of experience in the field, Jaxon's deep understanding of accounting principles and regulations allows him to provide...


      Comments are closed