26 March 2025
Australia has one of the best superannuation systems in the world1. For almost 40 years, Australians have benefitted from this public policy innovation, accumulating more than $3.92 trillion of retirement savings.
Built on the foundations of universality, compulsion and preservation, the Australian system helps to ensure that everyone has the right to receive superannuation, that they contribute regularly and that they keep their savings until retirement. These three central tenets of the system work together to provide additional income and financial security above that which is provided by the Government Age Pension, allowing retirees to enjoy an improved standard of living, now and into the future.
As Australians are living longer and healthier lives, it is more important than ever that superannuation continues to deliver strong, risk-adjusted long-term returns for a growing number of retirees.
With the number of Australians over the age of 65 predicted to double over the next 40 years3, superannuation also helps ensure younger generations aren’t unnecessarily burdened with higher taxes needed to fund increasing expenditure on the Age Pension.
READ MORE: HOW SUPER WORKS WITH THE GOVERNMENT AGE PENSION
Super for all workers
Making superannuation available to all workers on every dollar they earn, regardless of income, occupation or employment status is an important part of ensuring the system works for everyone.
A retirement savings system that is universal helps to ensure everyone has the opportunity to benefit from the investment performance and compounding returns that superannuation offers. With everyone contributing there is a growing pool of money that can be invested in Australian and global companies, capital markets and infrastructure assets that many individuals would not be able to access otherwise.
Saving for your future
The high cost of living forces many to prioritise immediate expenses over saving for the future. To help Australians save for their retirement, paying super to eligible employees was made compulsory for employers.
When the Superannuation Guarantee (SG) was first introduced in 1992, a cornerstone of the system was that employers were required to contribute a minimum percentage of their employees' earnings to a superannuation fund. Back then, the SG rate was 3%, with a gradual plan to increase it. Now, 30 years later, employers contribute 11.5% of employees’ wages into super, and this will increase to 12% on 1 July 2025.
The compulsory nature of our superannuation system ensures that we save a portion of our income automatically. This alleviates the immediate burden of financing your future, which is one less financial concern to manage.
Long-term compounding returns
A fundamental pillar of the super system is that your savings are preserved throughout your working life. This means you can benefit from a long-term investment horizon and reinvested returns that can continue to grow.
These reinvested, or “compounding” returns are the magic of superannuation – they are the returns you make from reinvesting your retirement savings, so your returns earn returns. Super Members Council modelling estimates that by the time you reach retirement, up to three quarters of your super balance will likely be made up of “compound returns” on your contributions4.
The system was designed to keep your retirement savings invested over the long term, which:
- allows your superannuation fund managers to access a range of investment types, including infrastructure and other private assets with long investment horizons, and
- ensures that your savings are preserved to provide you with an income stream in retirement.
Superannuation in action
A 25-year-old Brisbane cleaner earning full-time Ordinary Time Earnings of $49,000 with:
- Super Guarantee contributions, and
- investment returns of 6.5% p.a, over their lifetime net of fees and applicable taxes
can expect to retire at age 67 with an estimated $368,000 in super. When combined with the full Age Pension, if eligible, this gives them a projected income of $48,000 p.a. over 25 years5. The maximum basic full Age Pension amount for a single person is $27, 225 p.a6.
Securing the system for the future
Australia’s retirement savings pool of $3.9 trillion is the fourth largest in the world, despite Australia being ranked 56th in population size7. These funds are invested in a range of industries and assets in Australia and overseas, supporting economic growth. The superannuation system supplements government spending on the Age Pension, providing retirees with more financial security without additional strain on the Federal Budget.
The long-term nature of superannuation investing fosters stability of financial markets by providing a steady and continuous stream of capital. The breadth of superannuation funds’ balance sheets allows them to provide financing to businesses across a range of investment classes, including public and private equity and debt capital, and investment in venture capital and micro-cap companies.
With its foundations of universality, compulsion and preservation, the super system benefits members, communities and the Australian economy now and over the coming decades.
References:
- 2023 Mercer CFA Institute Global Pension Index ranked Australia’s superannuation system 5th out of 47 retirement systems.
- APRA Quarterly superannuation fund level statistics September 2024. Released December 2024.
- Treasury, 2023 Intergenerational Report.
- Estimate based on SMC modelling. Assumes 44 continuous years full time working and employer contributions to superannuation. Uses the median income percentile https://smcaustralia.com/how-super-works/
- Brisbane cleaner is 25 years old on 1 July 2024. Salary indexed at 3.5% p.a. AustralianSuper accumulation administration fees of $1 per week and 0.10% of account balance (capped at $350 p.a.) and average insurance costs of $400 p.a. Assumes member will receive a tax benefit of 15% on any administration fees and any insurance fees deducted directly from the accumulation account. Investment returns projected over the lifetime are 6.5% p.a, net of fees and applicable taxes. SG contributions are 11.5% initially, rising to 12% p.a. by 1 July 2025 as legislated. Assumes member works full-time throughout the projection period with no career breaks. Retirement income indexed at 3.5% pa. Member is a single homeowner for Age Pension purposes and has $10,000 in assets outside of super and principal place of residence. Retirement income projection is over a 25-year drawdown period. AustralianSuper account-based pension fees of $1 per week and 0.10% of account balance (capped at $600 p.a.). Results are expressed in today’s dollars by discounting at wage inflation of 3.5%. Figures rounded to the nearest $1,000.
- Maximum basic Single rate $1,047.10 per fortnight ($27,224.60 per year) at September 2024 servicesaustralia.gov.au/how-much-age-pension-you-can-get?context=22526
- Organisation for Economic Cooperation and Development (OECD), Pensions at a Glance 2023: OECD and G20 Indicators, OECD Publishing, Paris, p222, (https://doi.org/10.1787/678055dd-en), and World Development Indicators database, World Bank, 1 July 2023
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