Super Nation is a fortnightly column that examines, explains and analyses key issues in one of Australia's largest, fastest-growing and most important industries: superannuation.
One of the many drivers of growth in the Australian superannuation sector is set to be removed once the mandatory rate increases on 1 July.
The rise in the superannuation guarantee (SG) to 12% from 11.5% of wages and salaries is the last of the legislated increases in the rate, with any future changes dependant on the government of the day and parliamentary approval.
The gradual escalation of the SG percentage over the last 33 years has contributed to the rise in the value of the sector to A$4.1 trillion (US$2.6 billion), making Australia’s pension system the fourth largest in the world.
Punching above weight
Despite having only the 13th largest economy and 55th largest population in the world, Australia has an outsized super system because retirement savings have been mandatory since 1992.
The rate has risen gradually from an initial 3%, and in annual increments of 0.5% since 1 July 2021.
Even with the rate that employers pay anchored at 12%, it is safe to assume the sector’s size will continue to grow due to:
- increases in number of people in the workforce and in their wages and salaries, which drive the value of compulsory contributions by employers
- contributions by fund members and other contributions, and
- investment returns.
Offsetting this growth are outflows as a result of benefit payments and withdrawals.
Contributions were $202.8 million in the three months to 31 March 2025, which was 14.4% higher than in the same period a year earlier, during which time the SG rate rose to 11.5% from 11%.
Depending on the changes in the other drivers, the increase in contributions may slow.
The latest increase rate has been hailed by the industry’s peak bodies as a milestone for all workers, particularly younger super fund members, while CPA Australia urged Australians to ensure they were on track for a comfortable retirement.
“There are no more legislated increases to the Superannuation Guarantee, so it’s up to individuals to take control of their super and make sure they are getting the most from their money,” CPA Australia’s Superannuation Lead Richard Webb said in a media release.
Peaks comforted
The Association of Superannuation Funds of Australia (ASFA) said for the first time a 30-year-old on the median wage would be on track to achieve a ‘comfortable’ retirement with the rate at 12%.
ASFA projected that such a person with a super balance of $30,000 and earning the median wage of $75,000 until retiring at age 67 should accumulate $610,000 in super, more than the $595,000 that ASFA estimates is needed for a single person who owns their own home to fund a comfortable retirement.
“This is a major milestone in Australia’s retirement system,” ASFA CEO Mary Delahunty said in a media release.
“With the super guarantee increase to 12%, we are seeing super fulfil its objective of providing a dignified retirement for ordinary Australians, with today’s 30–year-olds reaping the rewards of decades of progress in our world-class super system.”
Another representative body, the Superannuation Members Council (SMC), said almost 10 million Australians, split almost evenly between men and women, would receive an automatic boost to their super worth thousands of dollars more in retirement savings from 1 July.
The SMC said a typical 30-year-old could retire with $22,000 more in super as a result of the latest increase.
“Taken together with the full increase from 9% to 12% over the past decade, it could add up to $132,000 in extra superannuation savings by retirement,” SMC said in a media release
The organisation said:
- more than half of the people getting the increase were under 40, and more people in their 30s would get a boost to their retirement savings than any other age bracket (Table 1 below)
- almost a third of them earned less than $50,000 per year and about 70% earned less than $100,000 a year (Table 2)
- Western Australians would receive the largest increase, an average of $344 this year (Table 3)
SMC also cited figures showing about 90% of people aged between 30 and 50 had super, compared with only 10% of retirees listing listed super as a source of income before 1992.
“As more people start to retire with super, it significantly reduces pressure on the taxpayer-funded age pension,” it said.
“Already, the proportions of people on the full- and part-pension are declining steadily and super now pays out more than twice as much each year in benefits than the Age Pension.”
The Intergenerational Report showed Australia’s Age Pension spending would fall from 2.3% of gross domestic product (GDP) to 2% by 2062/63, despite a doubling of people over 65 and a trebling of those over 85 and an increase in other costs associated with an ageing population.
But what they do not state is how much tax revenue has been forgone since compulsory super was introduced in 1992, an amount that has been estimated at several hundred billion dollars.
This flows from the fact that super is taxed at concessional rates below the marginal tax rates of most taxpayers in return for these savings being locked up for decades.
The question is whether on balance Australians are better off as a result of this system, which is considered by some to be the envy of the world.
