1 July 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 $4 trillion2 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, more than 30 years later, employers contribute 12% of employees’ wages into super.
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.
Securing the system for the future
Australia’s retirement savings pool of $4 trillion is the fourth largest in the world, despite Australia being ranked 56th in population size5. 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:
- 2024 Mercer CFA Institute Global Pension Index ranked Australia’s superannuation system 6th out of 48 retirement systems.
- APRA Quarterly superannuation fund level statistics March 2025. Released 26 June 2025.
- 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/
- 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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