Pensions and retirement saving in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Superannuation is Australia's compulsory retirement saving system. Every eligible employee receives contributions from their employer — currently 12% of ordinary time earnings — paid directly into a superannuation fund in their name.
How superannuation works
Your employer is legally required to contribute 12% of your ordinary time earnings to a complying superannuation fund. This is known as the Superannuation Guarantee (SG). The contributions belong to you, not your employer, and accumulate over your working life.
"Ordinary time earnings" covers your regular pay, including allowances, commissions and some bonuses. It does not include overtime pay in most cases.
Contributions are generally paid at least quarterly, though many employers pay more frequently. The money sits in your super fund, invested on your behalf, until you reach preservation age and meet a condition of release — typically retiring from the workforce.
Choosing your fund
Most employees have the right to choose which super fund receives their contributions. If you do not choose, your employer pays into a default fund that meets minimum standards. Many awards and enterprise agreements also nominate a default fund.
From the start of your employment, your employer should provide you with a Standard Choice Form so you can nominate your preferred fund. If you already have an existing super account and want contributions to go there, simply provide your fund details and member number.
The Australian Taxation Office (ATO) also operates a system called stapling, which means if you start a new job and do not choose a fund, your employer is generally required to pay into your existing ("stapled") fund rather than opening a new one. This helps reduce duplicate accounts eating into your balance through fees.
What happens to the money
Once inside your super fund, your money is invested — usually across a mix of shares, property, bonds and cash. Most funds offer several investment options, from conservative to high growth, and you can typically switch between them.
Your fund charges fees for administration and investment management. These vary between funds and can materially affect your long-term balance, so it is worth comparing fees and investment performance when choosing or reviewing a fund.
Your super balance is generally locked away until you reach preservation age (currently between 55 and 60 depending on your birth year) and meet a condition of release. There are limited exceptions — severe financial hardship, specific medical conditions, or permanently leaving Australia on a temporary visa (in which case you can claim a Departing Australia Superannuation Payment, subject to tax).
Tax treatment of super
Super is taxed at a concessional rate compared with ordinary income, which is part of what makes it an effective long-term savings vehicle.
Employer SG contributions are classified as concessional contributions and are generally taxed at 15% inside the fund — lower than most people's marginal income tax rate. Your employer does not include SG contributions in the gross wages on your payslip for income tax purposes; super sits alongside your pay, not inside it.
You can also make voluntary contributions from your after-tax pay (non-concessional contributions), or salary-sacrifice additional amounts pre-tax (concessional) up to the annual concessional contributions cap. Making extra contributions earlier in your career can have a significant compounding effect over time.
If your income and concessional contributions combined exceed a certain threshold, a Division 293 tax applies, which effectively reduces the concession for higher earners — but this is handled through your tax return, not your payslip.
Accessing your super at retirement
When you reach preservation age and retire, or turn 65 regardless of work status, you can access your super as a lump sum, an income stream (account-based pension), or a combination. Withdrawals from a taxed fund after age 60 are generally tax-free.
An account-based pension lets you draw a regular income while the remaining balance stays invested. There is a minimum annual drawdown percentage that increases with age, set by government regulations.
If you die before accessing your super, your fund pays a death benefit to your nominated beneficiary — either as a lump sum or, in some cases, an income stream. Keeping your beneficiary nomination up to date is important; an outdated nomination can complicate things for your family.
Finding lost super
It is common for people to accumulate multiple super accounts across different jobs. Lost or unclaimed super is held by the ATO once a fund has not been able to contact the member. You can find and consolidate lost super through your myGov account linked to the ATO, or directly through your preferred fund's online portal. Consolidating accounts into one reduces duplicate fees and makes your retirement savings easier to track.
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