Superannuation is money regularly put into a fund that will be paid to the employee as a pension when they retire.


Paul Bingham


Superannuation schemes

Last updated

1 July 2022

Introduction to superannuation

The federal government encourages people to save for retirement in a variety of ways. Mainly, the government gives superannuation tax concessions.

There are three points at which tax is important to your superannuation: when money goes into the fund, while it is there, and when it comes out.

Money contributed to superannuation can be taxed at 15 per cent (or effectively 0 per cent, if the contributor earns $37 000 or less and qualifies for the low-income super tax offset, which is a maximum of $500), or 30 per cent if the contributor earns over $250 000, but it can also gain the contributor a tax benefit.

Money in a superannuation fund can make income and capital gains that are taxed at concessional rates while the fund has not yet started to pay a benefit, but are not taxed, up to a maximum of $1.7 million (ignoring investment gains or losses), after the fund has started to pay a benefit. Money that comes out of the fund is not taxed, unless the money comes out before the beneficiary has turned 60 years of age, in which case a benefit for which a tax deduction has been claimed is taxed but with a 15 per cent offset (or 10 per cent if the contribution was untaxed). There may also be tax free components of a lump sum and a low rate cap concession that reduce tax on lump sums taken below age 60.

Superannuation income is not treated as income for tax purposes, meaning that other earned income benefits from a lower marginal rate.

The general explanations below are subject to a variety of exceptions, particularly in relation to defined benefit schemes, public sector superannuation schemes, and disability income streams.

What is a superannuation trust?

Virtually all private sector superannuation schemes in Australia are organised through the legal device of a trust. A trust is a form of ownership of property in which one person (the trustee) is the legal owner of the property, but is under a legal obligation to use the property exclusively for the benefit of another person (the beneficiary). In the case of a superannuation trust, the rights and obligations of the trustee and beneficiaries (often called ‘members’) are set out in a document called a ‘trust deed’.

The trustee of a superannuation fund may be a company or one or more individual people. Some commercial organisations act as trustees for a large number of employers under a single trust deed.

Some public sector superannuation schemes are not set up as trusts. The rights of members of these schemes depend on the legislation governing them.

The legal principles governing the law of trusts were developed in cases concerning trustees who administered, without payment, sums of money made available to the beneficiaries through gifts and wills. As will be apparent from this chapter, these principles are, arguably, inappropriate to determine the rights of members of modern superannuation schemes, where the benefits are provided in a commercial context, frequently in substitution for wages under awards and contracts of employment.

Superannuation contributions

Superannuation guarantee

Under the Superannuation Guarantee (Administration) Act 1992 (Cth), employers must contribute 10.5 per cent of ‘ordinary time earnings’ as superannuation for its employees, for work done in Australia, into a superannuation fund.

This is the case unless the employee:

  • holds a certain type of visa;
  • is not a resident of Australia and the work is done outside Australia; or
  • is under 18 and working 30 hours a week or less (ss 27, 28).

Contributions are made to ‘complying’ superannua­tion funds or retirement savings accounts. Contributions should be made within 28 days of the end of the relevant quarter.

The 10.5 per cent is calculated against ordinary time earnings up to a quarterly limit. In the 2022–2023 financial year, this limit is $60 220 per quarter. The Australian Taxation Office (ATO) has provided guidance about what ‘ordinary time earnings’ means in Superannuation Guarantee Ruling SGR 2009/2, which is available on the ATO’s website. ATO rulings provide guidance only and do not have the force of law.

Different rules apply to ‘defined benefit’ super­annuation schemes (for an explanation of defined benefit superannuation schemes, see ‘Types of benefits’, below).

Salary sacrifice

If the employer and the fund agree, an employee may make further contributions, within strict limits, under ‘salary sacrifice’ and other arrangements. This can mean that instead of paying tax at the individual’s marginal tax rate on the amount ‘sacrificed’, tax is paid at a concessional rate of 15 per cent. This is usually a lower tax rate than the marginal rate.

Tax on concessional contributions for people with pre-tax earnings of $250 000 or more is 30 per cent. Tax on concessional contributions for people with pre-tax earnings of $37 000 or less is 15 per cent, but the person receives a refund of up to $500 as a low-income super contribution, meaning the tax is effectively 0 per cent. There might be a consequential impact on eligibility for the Medicare levy surcharge or other offsets or benefits.

In the 2022–2023 financial year, the maximum that can be contributed and attract a tax deduction is $27 500. This maximum includes employer compulsory (super guarantee) contributions, salary sacrifice, and voluntary concessional contributions.

Personal contributions

All individuals under the age of 75 can claim tax deductions for personal super contributions (voluntary concessional contributions). In the 2022–2023 financial year, the maximum that can be contributed and attract a tax deduction is $27 500. This maximum includes employer compulsory (super guarantee) contributions, salary sacrifice, and voluntary concessional contributions (these are subject to a work test for people aged over 67 years – see ‘Age restrictions’, below).

There is no tax on voluntary contributions that did not attract a tax deduction (called ‘non-concessional contributions’).

However, only $110 000 per year may be contributed on a non-concessional basis, subject to the work test for people aged over 67 years and not having more than $1.7 million in total super assets (or less if the person’s super balance cap is less) (ignoring investment gains and losses).

A person aged under 75 years with a total superannuation balance of less than $1.48 million can bring forward future contributions up to $220 000 over a two-year period (meaning a total contribution of $330 000 in one year). A person aged under 75 years with a total superannuation balance of between $1.48 million and $1.59 million can bring forward future contributions of up to $110 000 in total.

If a person has a superannuation balance of less than $500 000 at the end of the previous financial year, a catch-up contribution can be made if the maximum concessional contributions (i.e. $27 500 a year) were not made in previous years (from 1 July 2018). If a person has a total superannuation balance equal to or more than $1.7 million (or less if the person’s super balance cap is less) (ignoring investment gains and losses), no non-concessional contributions can be made.

Small business owners who sell certain business assets can make a non-concessional contribution of up to $1.65 million and receive possible capital gains tax benefits.

People aged 60 or more who sell a home they have owned for 10 years or more can make a contribution of up to $300 000 even if they would otherwise be prevented by age or because their total superannuation balance is too large.


Certain employees and self-employed people with an annual assessable income and reportable fringe benefits of less than $56 112 and who are aged less than 71 years get a government co-contribution of up to $500 for an eligible personal contribution of up to $1000 to a complying superannuation fund or retirement savings account. The maximum 50 per cent matching contribution amount is paid if the person’s total income is $42 016 or less, reducing gradually to nil for incomes of $57 016 and above. There are other restrictions.

Up to 85 per cent of concessional superannuation contributions made in the previous financial year can also be split with (i.e. given to) a spouse – as long as the spouse is less than 65 years old, or if they are over their preservation age, they are still working.

Low-earning spouse

Taxpayers can claim a tax offset of up to $540 for contributions made on behalf of their spouse aged 75 or less with an income less than $40 000. This is the case unless the spouse has a total superannuation balance of $1.7 million (or less if the person’s super balance cap is less) (ignoring investment gains and losses) or more. If the spouse is aged 67 or more, a work test must be done.

Small and inactive accounts

Fees on superannuation accounts with a balance less than $6000 are limited to three per cent. If a superannuation account has been inactive for 16 months, insurance on that account is cancelled.

Age restrictions

The following age restrictions apply to non-concessional superannuation contributions:

  • Before the age of 67, a person can make non-concessional contributions even if they are not working.
  • Between the ages of 67 and 75, a person can make non-concessional contributions of up to $110 000, so long as they work for at least 40 hours in a period of 30 consecutive days – this is the ‘work test’.
  • Between the ages of 67 and 74, a person whose total superannuation balance is less than $300 000 can make non-concessional contributions for the first year they no longer meet the work test.

There is no obligation to draw down monies from a superannuation fund at any age. However, not taking a pension when one is available means the loss of the potential benefit that a fund paying a pension is not taxed on its investment returns.

Eligible termination payments

Most eligible termination payments (known as ‘employment termination payments’) cannot be rolled over into superannuation.

Lost superannuation

When a worker changes jobs, they may be required to join a different superannuation fund. It is important that the money in the previous fund is not forgotten. The money can be moved or ‘rolled over’ to the new fund. 

The ATO keeps a register of ‘lost’ money. Contact the ATO if you think you have lost track of superannuation money.

An alternative for people who have many small jobs is to start a ‘retirement savings account’ with a financial institution, into which all employers can pay small amounts of superannuation.

Switching superannuation funds

There are no exit fees when a person switches from one superannuation fund to another.

Superannuation guarantee charge

If employers do not contribute 10.5 per cent as described above, a ‘superannuation guarantee charge’ has to be paid to the ATO, which then contributes the net amount to superannuation to benefit the employee. This is calculated against an employee’s ‘salary or wages’, which may be more than the employee’s ordinary time earnings. See Superannuation Guarantee Ruling SGR 2009/2.

The charge is only payable in respect of employees, not contractors. Difficult questions arise about whether a person is a contractor. For example, the High Court has found that a bicycle courier employed as a contractor was an employee, but a motor vehicle courier was a contractor. If a contractor is paid mainly for their labour, super may be payable. The ATO’s website has a ‘employee/contractor decision tool‘ to help work out if a person is an employee or a contractor.

The employer should pay superannuation guarantee contributions at least once each quarter, on 28 October, 28 January, 28 April and 28 July in each year. The employee should be notified on a pay slip, letter or email. If these amounts are not paid, then the employee could be disadvantaged if the company becomes insolvent. If notification is not received at the appropriate time, contact the superannuation fund or the ATO. In United Super Pty Ltd v Built Environs Pty Ltd [2001] SASC 339, it was held that a super fund was in breach of trust and in breach of contract when it did not inform a member that payments by the employer had ceased.

However, the ATO is not active in enforcing payment; the charge is paid only if the employer is still solvent and the employee misses out on benefits. There may be a cause of action against the employer if insurance benefits have been lost.

First-home Super Saver Scheme

First-home buyers can make voluntary superannuation contributions of up to $15 000 a year – and a maximum of $50 000 over more than one year – to their superannuation account for the purpose of purchasing a first home to live in. This provides the taxation advantage that investment returns on such amounts are taxed on a concessional basis.

Choice of superannuation fund

About half of Australia’s employees can choose the superannuation fund into which their contributions are paid. The choice made could have a big effect on the type and amount of benefit available, and it is worthwhile considering the benefits available before a choice is made.

The first thing to consider is the type of benefit you currently have and the varieties of fund available. If the employee does not nominate a fund, the employer will pay the benefit into a default fund. All default funds (except ‘retirement savings account’ funds) have to offer minimum age-based death insurance and many funds provide some level of disablement insurance.

Types of benefits

There are two basic types of benefits: defined benefits and accumulation benefits.

Defined benefits

The defined benefit fund pays a set benefit, usually a multiple of the worker’s annual salary, perhaps averaged over the three years before retirement on ceasing work. 

The worker has to have a considerable number of years of service before the full benefit is paid. If the worker leaves before the minimum number of years for a full benefit, the benefit is usually calculated on years of service and salary. This has the effect that the higher paid and longer serving employees benefit the most. 

The investment performance of the fund does not affect the benefit paid. The employer takes the risk of the investment performance of the fund.

Public service schemes and company schemes are often of this sort. The benefits are generous in comparison to the accumulation funds discussed below, and these schemes are becoming rarer. Advice should be taken before moving funds out of this sort of scheme.

Accumulation benefits

The other sort of scheme, the accumulation fund, repays contributions together with whatever investment income has been obtained. This means that the final benefit paid depends on the amount originally contributed (less tax and administration fees) and whatever return the investment of that amount has produced, for the time it has been in the fund. Obviously, the contributor (rather than the employer) takes the risk of poor investment performance, or that (for example) the share market is depressed at the time of retirement.

Varieties of superannuation funds

There is a variety of superannuation providers.

For many employees, their award or other agreement used to (but in many cases no longer does) require contributions to a particular fund. Often, this fund is controlled jointly by employers and unions, a so-called ‘industry fund’ covering many employees in a particular industry. For example, the Construction and Building Unions Super fund covers workers in the building industry, although most funds are now trying to attract members outside their traditional base. These funds are generally run on a not-for-profit basis, so administration fees are usually low. Employers and unions are represented on the board of the trustee, which makes decisions about where the contributions are invested and what benefits are available to members.

In other cases, the employer sets up or arranges a particular fund for its employees, and the employer effectively provides the administration for the fund. Increasingly, employers are turning over such funds to professional administrators that charge commercial fees for administration. These are usually referred to as ‘company schemes’.

In other cases, the employer chooses a ‘master trust’ arrangement, in which a large financial organisation (e.g. a life insurance company) sets up a commercial fund that can service many employers. Often, the fund is invested with the associated life insurer or the associated funds manager.

Employees of the Commonwealth Government have their superannuation paid into the Commonwealth Superannuation Scheme, the Public Sector Super­annuation Scheme or the PSS Accumulation Plan.

Employees of state government instrumentalities have their own superannuation schemes. These have been much amalgamated and, in some cases, have had benefits reduced in recent years. There is still a variety of schemes and benefits, such as the Emergency Services and State Superannuation Scheme and VicSuper. Some of these schemes are controlled by an Act of Parliament and administered by a board. Appeals of decisions of such boards can be taken to the Victorian Civil and Administrative Tribunal. Other schemes are controlled by a trust deed and a trustee.

There are also superannuation schemes available to individuals outside the employment context. Most large financial institutions provide a master fund type scheme in which the individual makes contributions to provide for their retirement to a commercial trustee who invests the funds. Banks and other institutions also provide retirement savings accounts that have the same function, although they seem to produce lower returns than others.

Individuals (usually self-employed people) can also set up private superannuation funds (the so-called DIY or self-managed super funds). In such a fund, each member has to be involved in the management of the fund, and there are strict limits on what can be done with the money. Such funds are not economically feasible if the amount of funds is less than about $250 000.

Features of superannuation funds

Usually, defined benefit schemes are much more generous than accumulation type schemes. Therefore, a person in a defined benefit scheme will usually be better off staying in such a scheme than shifting to any type of accumulation scheme.

If a person is already in an accumulation type fund, then there are probably four main things to consider before either deciding to stay in the current fund or shift to a new fund.

  1. Fund’s performance: The first thing to consider is the fund’s investment performance. The main job of a superannuation trustee is to invest your money to generate strong, consistent returns. Do not judge a fund only on its performance in the past year; look at the trustee’s investment performance over the past 5–10 years. 
    Take into account, that a variety of investment options is usually available to fund members. For example, there may be a conservative (capital stable) option, a balanced option and a growth option, depending on the member’s appetite for risk. So, it is worthwhile looking at the investment performance of the trustee in respect of each available option. In addition, some funds take into account ethical and environmental considerations in their investment decision-making. You should consider how you want your money invested by the super fund. If you do not make a choice, you will be placed in the default investment option, which is usually a balanced investment option.
  2. Fees and charges: The second thing to consider is the trustee’s fees and charges. An average superannuation fund charges about 1.3 per cent (of the funds under management) for investing and administering the fund. Some public sector funds charge less than 0.5 per cent. Some funds charge three per cent. Because ‘industry’ funds and public sector funds are not-for-profit, the fees charged by these funds should be lower than the fees charged by the funds run for profit.
  3. Insurance benefits: The third thing to consider is the insurance benefits available. Death, disability and sometimes income protection benefits are some of the most significant benefits available in superannuation. It is generally cheaper to buy insurance through the superannuation fund because the fund can negotiate a cheaper price for volume. Often, insurance is available without reference to previous medical history. Look very carefully at the definition of ‘disability’ in the insurance policy as this can be the difference between obtaining an insurance payout and the benefit being refused. Also, moving from one insurance policy to another can mean that the new insurer may require a health check or a health disclosure.
  4. Services and benefits: The fourth thing to consider is the other type of services or benefits available. Some funds offer cheap home loans, financial products, newsletters or discounts.

Superannuation comparison tool

The ATO’s YourSuper comparison tool compares 80 MySuper products by fees and net returns.

Money in the fund

Tax concessions

Since 1 July 2017, a maximum amount can be held in the retirement phase (in which earnings and capital gains are not taxed). That figure is now $1.7 million (or less if the person’s super balance cap is less) (ignoring investment gains and losses). Any excess must be held in the accumulation phase (where earnings and capital gains are taxed, but on a concessional basis).

Also, since 1 July 2017, the earnings from assets supporting a transition to the retirement income stream are taxed. However, the income stream remains tax free for people over 60 years old. Generally, benefits paid are only taxed if the beneficiary is below 60 years of age. However, the tax on benefits paid is payable only on retirement or earlier payout of benefits.

Superannuation funds have the advantage that they pay tax in the accumulation phase of 15 per cent on their income and 10 per cent on their capital gains on assets held for 12 months. This means that money in superannuation should grow more quickly than money invested in a person’s own name, so long as the person is paying a marginal rate of tax above 15 per cent.

A person’s tax file number must now be given to the superannuation fund in order to avoid being taxed at the top marginal rate.

Taking benefits

At age 65, a person can take their superannuation benefits. Before that age, a person must satisfy a ‘condition of release’ (or transition to the retirement stream) to take superannuation benefits. 

Between ages 60 and 65, resigning from a job is a condition of release. If the person has reached ‘preservation age’ (ages 55 to 60, depending on the person’s birth date), a condition of release is that the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either full-time or part-time (at least 10 hours per week).


If the beneficiary is aged 60 or more, all pensions paid from a taxed source are tax free. If the beneficiary is over 60 and retired, or over 65, lump sums paid from a taxed source are tax free. If the pension is not paid from a taxed source (e.g. certain government pensions) certain elements of the pension are taxed at a concessional rate.

If the beneficiary is between their preservation age (see ‘Preservation’, below) and 60, or below their preservation age, taxation is complicated. For people between their preservation age and 60, a lump sum of up to $225 000 of the taxable component is tax free. Further details are available in ‘Withholding Schedule 12: Tax Table for Superannuation Lump Sums‘.

It is no longer possible to access the concessional and non-concessional components other than in the proportion they bear to the whole of the fund (unless the fund is split into two funds).

The taxation of benefits can also be delayed by ‘rolling over’ the benefit into a particular type of fund, and letting it accumulate, rather than taking the benefit as soon as it is available.

Pensions and lump sums

If an individual takes benefits before they turn 60, a portion is taxable at the marginal rate, less a 15 per cent tax offset if aged 55 or over. Any pension is allowed that meets certain minimum standards relating to minimum annual payments (e.g. the annual payment for a beneficiary aged 55–64 must be at least two per cent (reduced for the 2022–2023 financial year) and no more than 10 per cent of the account balance). Superannuation is not counted in the Centrelink assets or income test until a superannuation pension is paid. It is important to get professional advice about this complex area.

Back to
Managing your money

Buy the chapter ‘Superannuation’