Superannuation, colloquially known as super, is Australia's retirement savings system. A portion of your salary automatically goes into your super fund, but you can also make additional voluntary contributions. It invests your money in the stock market and other assets and benefits from a favourable tax rate. You can access this money once you’re retired. That’s the basic overview, but read on to explore the types of contributions you can make, how much tax you’ll save, and strategies to get the most out of your super.

Contributions

You fund your superannuation through compulsory and voluntary contributions. Compulsory employer contributions currently deduct a minimum of 11% of your salary, but this increases to 11.5% in July 2024 and settles at 12% in July 2025. 

You can also make voluntary contributions, of which there are two types: concessional contributions and non-concessional contributions. 

Concessional Contributions:

These are personal contributions made from your pre-tax income. There are two ways to make concessional contributions: 

• 1. Salary sacrifice. This involves asking your employer to take additional money out of your salary. For example, you could ask them to contribute an extra 1% of your salary. 
• 2. Making a personal contribution and then claiming it as a tax deduction. This involves you manually depositing the funds into your superannuation account at tax time, but it has the same outcome as salary sacrificing. If your income varies, we recommend using this strategy over salary sacrificing because it allows you to contribute precisely the amount you desire so that you don’t go over or under the concessional contribution cap.

Non-Concessional Contributions:

These are personal contributions made from your after-tax income. Concessional contributions have favourable tax treatment, so you should generally max them out before making any non-concessional contributions.

Contribution Caps

Concessional contributions 

The current annual concessional contributions cap is $27,500. However, if you haven’t maxed out your concessional cap in previous years, you may be able to carry some of these forward into the present year. Concessional contributions = your employer contributions + any voluntary salary sacrificing + any voluntary personal contributions. 

Non-concessional contributions

The current annual non-concessional contributions cap is $110,000. However, you may be able to bring forward future non-concessional contributions into the present year. 

We’ll now discuss the benefits of superannuation (hint: it will save you a lot of tax). 

Benefits of superannuation 

1. Pay less tax instantly

When you make concessional contributions to your superannuation fund, whether through your employer, salary sacrifice, or personal deductible contributions, these contributions are typically taxed at 15%. However, those earning over $250,000 are subject to an additional 15% tax, known as the Division 293 tax. Either way, this is significantly lower than the marginal tax rates that apply to your regular income. 

Example: Suppose you earn $150,000 per year and contribute $10,000 to your superannuation through salary sacrifice. Instead of paying your 37% on that $10,000, you would only pay 15% tax on it, which would save you $2200. 

2. Pay less tax as your investments grow

Once your money is inside your superannuation fund, it enjoys tax benefits on investment growth. The returns generated by your investments within the fund are taxed at just 15%, regardless of your income level. This means that your investments can grow more efficiently compared to investments held outside of superannuation.

Example: If your investments within your superannuation fund generate $10,000 in returns, you will only be taxed 15% rather than your marginal tax rate.

3. Pay no tax in retirement

When you reach your preservation age (usually between 55 and 60, depending on your age), you can start accessing your superannuation savings. This is where things get even better. Once you’re in the retirement phase, you pay zero tax on earnings and withdrawals. 

Example: If your investments within your superannuation fund generate $10,000 in returns, you won’t pay any tax. Moreover, if you withdraw $50,000 from your superannuation to cover living expenses, you also won’t pay any tax, allowing you to make the most of your savings in your golden years. If this was outside of super, you’d pay income tax on the $10,000 and capital gains tax on the $50,000.

4. Enjoy a safe, easy, and effective investment vehicle 

Superannuation is popular among seasoned investors because it’s one of the most tax-efficient investment vehicles available. But it’s also popular among beginner investors because it’s a safe, easy, and effective way to get invested. No matter where you are on your investment journey, superannuation should be a part of your overall strategy.

Comparison 

Let's compare two people: Sam and Owen. Both are 30, make $150,000 a year, and invest $10,000 annually (indexed at 2.5% inflation). The only difference is Sam invests inside of super, and Owen invests in diversified ETFs outside of super. Both superannuation and diversified ETFs have roughly grown at about 8.12% a year after fees, so assume this trend continues. 

By age 60, Sam will have $2,059,411 and Owen will have $1,125,536. Sam earned $900,000+ more simply by deciding to invest that annual $10,000 inside of super. If they want to spend their money, Sam could soon withdraw it tax-free. Owen, on the other hand, would have to sell his shares and then pay capital gains tax. And the difference between Sam and Owen will continue compounding as they age, so that Sam can live a more luxurious life and leave more to his kids. Choosing how much to invest in your superannuation is quite literally the million dollar question–so choose wisely. 

Conclusion

Clearly, superannuation can save you a lot of money. A small concessional contribution each year will result in a much bigger nest egg. To maximise your superannuation benefits, consider the following: avoid funds with high fees and low performance, use concessional and non-concessional contributions wisely, consider the division 293 tax if you’re earning over $250,000, and be mindful of exceeding the transfer balance cap. But most of all, ensure your approach to superannuation fits within a broader investing, tax minimisation, and asset protection strategy. If you want to learn more about this broader strategy, check out our course.