Superannuation Australia Rate 2025: Everything You Need to Know

Australia’s Superannuation Rate Changes 2025

Australia’s superannuation system is the key to financial security in retirement.

A compulsory savings scheme, employers must put aside a portion of an employee’s income into a superannuation fund. The superannuation contributions and investment returns grow the fund over time.

As of 2024 the total superannuation assets in Australia are over AUD 3.5 trillion, one of the largest pension systems in the world.

Superannuation Guarantee (SG) Rate Changes

Stay up to date with changes to the Superannuation Guarantee (SG) rate for both employees and employers.

Changes to the SG rate affect:

• Take home pay — employee’s disposable income.

• Retirement savings — total amount saved for retirement.

• Business costs — employer’s financial obligations.

Over 70% of Australian workers are affected by SG rate changes, so it’s big.

With an increase coming soon, you need to know about these changes.

Current Superannuation Environment

SG Rate as of 2024

As of 1 July 2024, the SG rate stands at 11.5%. That’s up from previous years. Employers must contribute 11.5% of an employee’s ordinary time earnings (OTE) into their superannuation fund. This is part of a long term plan to boost Australians’ retirement savings.

History

The SG rate has been gradually increasing over time to secure retirement outcomes. Introduced in 1992 at 3% it has increased over the years as the population has aged, life expectancy has increased and we need sustainable retirement income.

The increase to 12% is part of a long term policy commitment under the Superannuation Guarantee (Administration) Act 1992.

Changes in 2025

Increase to 12%

1 July 2025, the SG rate goes up to 12% for better retirement outcomes.

This will give employees a bigger financial buffer at retirement to support better investment returns over the long term.

Recent ABS data shows an increase to 12% could add an extra AUD 80,000 to AUD 100,000 to an average worker’s lifetime retirement savings earning AUD 80,000 per year over a 40 year career.

This is part of a series of changes to reduce reliance on government funded age pensions.

Background

The increase is part of a multi year legislative program introduced by the Australian government to strengthen the retirement system.

First announced in the early 2010s the increase was delayed but has been reaffirmed to ensure Australians have enough retirement savings.

Economic reviews such as the 2020 Retirement Income Review have highlighted the need for higher superannuation contributions to address the challenges of an ageing population.

Government has said the 12% rate is to improve retirement outcomes and reduce long term pressure on public pension systems.

Key Dates to the 12% Rate

• 2014: Initial delay announced due to employer costs and economic uncertainty.

• 2017: Government reconfirmed the 12% increase with a new timeline for the phase in.

• 2021-2024: Incremental increases from 9.5% to 11.5% to allow businesses and employees to adjust.

• 2025: Final increase to 12% after over 10 years of phase in.

Projected Impact

Treasury estimates the increase from 11.5% to 12% will add an extra AUD 2.8 billion per year to the superannuation system.

For employees this means bigger balances at retirement, especially for younger workers. ASFA analysis suggests a 25 year old starting their career in 2025 could have an extra AUD 90,000 to AUD 110,000 in superannuation savings by retirement assuming a 7% average annual return.

For employers the increase means higher labour costs. According to Ai Group data SMEs with thin profit margins may struggle to absorb the extra costs especially those with big workforces.

However the phase in and payroll compliance tools are meant to make the transition easier for businesses.

The 12% SG rate is part of Australia’s long term plan for a more self funded retirement system. As this change approaches employees and employers need to stay informed and prepared for the changes to the regulatory environment.

Implications for Employees

Impact on Take-Home Pay
One of the implications of the SG rate increase is a reduction in take home pay for employees on salary packaging arrangements. For some employees salary sacrifice arrangements may see a bigger portion of their total package go into superannuation contributions. For those on a fixed salary plus super there is no impact on take home pay as employers are responsible for the extra contribution.

Benefits to Retirement Savings

For employees the increase in the SG rate means long term financial benefits. Higher contributions means more compound growth in superannuation funds which means bigger retirement savings. Over a working life even a small increase in contributions can add up to a lot of extra wealth due to the power of compounding returns.

Key Benefits of Higher SG Contributions

• More Compound Growth: Bigger contributions means exponential growth of funds due to compound interest, more total retirement savings.

• Higher Final Retirement Balance: 0.5% increase in the SG rate means thousands more at retirement.

• Less Dependence on Age Pension: Higher super balances means retirees need less government pension.

• More Financial Freedom: Employees have more financial independence in retirement and less stress about post work income.

• Better Retirement Lifestyle: Higher balances means better lifestyle choices in retirement, travel and leisure activities.

• More Flexibility in Retirement Age: Bigger super balances means some employees can retire earlier.

• More Investment Options: With more money in super funds employees can access more investment options, property, shares and alternative assets.

• Inflation Protection: Higher contributions helps offset the impact of inflation on purchasing power especially in longer retirements.

• More Security for Part Time Workers: Part time and casual employees get proportional increase in super contributions and better retirement outcomes.

• Automatic Savings without Extra Effort: Employees don’t have to do anything to get the extra contributions, employers manage the process.

• Higher Average Returns: With a bigger investment pool employees may get higher average returns due to the nature of diversified large scale investments.

• Better Retirement Income Stream: Employees with bigger balances can convert their savings into a stronger longer lasting income stream through pension products.

• Longevity Risk Protection: Higher savings means less risk of outliving retirement funds and more financial security.

• Tax Effective Wealth Growth: Superannuation contributions are taxed at a lower rate than ordinary income, more after tax returns.

• Compensation for Lower Take-Home Pay: While some employees may see a small reduction in take home pay the long term benefit is a bigger retirement balance.

• Retirement Outcomes Equality: Women who have career breaks will benefit from bigger super balances and help close the gender wealth gap.

• Bonus for Low Income Earners: Low income employees get more from higher SG contributions especially when combined with government co-contributions.

• Peace of Mind for Future Self: Employees have more confidence in their financial future knowing they have a bigger financial buffer.

• Wealth to Beneficiaries: If retirees pass away with unused super the balance can be transferred to beneficiaries and build generational wealth.

• More Resilience to Market Volatility: Bigger balances means employees can ride out short term market downturns as bigger funds have more diversification and resilience.

Broader Economic Considerations

Effect on the Economy

Higher superannuation contributions may have mixed impact on the Australian economy. On one hand it reduces disposable income for some workers and may curb consumer spending. On the other hand higher superannuation contributions means more capital flows into the investment market and more national savings and long term economic stability. Over time this will reduce the reliance on government funded pensions.

Government Perspective

The Australian government’s view on the SG rate increase is to have a self sufficient retirement system. Officials have said the long term benefits of bigger retirement savings for individuals and the economy.

Policymakers say while there are short term costs for employers and employees the long term social benefits far outweigh the costs.

Preparing for the Change

Advice for Employees

Employees can prepare for the SG rate change by reviewing their personal financial plans. It’s a good idea to review superannuation fund performance, consider voluntary contributions and check the impact on take home pay. Talk to a financial advisor to get clarity on the best way to get the most out of retirement.

Employer Guidance

Businesses should prepare for the 2025 SG rate change well in advance. Employers must update payroll systems, review employment contracts if necessary and communicate clearly with staff about the change.

Proactive planning will help reduce disruption and ensure ATO compliance. For small to medium sized enterprises (SMEs) cash flow planning will be key to absorbing the extra cost.

The Bottom Line

The 12% SG rate on July 1 2025 is a big deal for Australia’s retirement savings.

For employees it means bigger super balances.

For employers it means more financial responsibility and planning.

Stay informed about super changes for both employees and employers.

As the super system changes, proactive engagement and strategic planning will be key to managing the financial impacts of these changes.

Whether you’re an employee looking to get the most out of retirement or an employer managing costs, understanding the SG rate increase is the first step to long term financial security.

FAQs

What is the current SG rate?

As of July 1 2024 the Superannuation Guarantee (SG) rate is 11.5% of an employee’s ordinary time earnings (OTE).

This is the minimum percentage of an employee’s income that employers must contribute to their superannuation fund.

The increase from 11% shows the Australian government’s commitment to bigger retirement savings for the workforce.

These contributions will help employees have enough money in retirement and reduce reliance on government pensions.

What are ordinary time earnings (OTE)?

Ordinary time earnings (OTE) is the earnings an employee receives for their regular working hours. This includes salary, wages, commissions, shift loadings and certain allowances.

Overtime payments are generally not included in OTE. Understanding OTE is important for both employers and employees as it’s the basis for SG calculations. The broader definition of OTE means more income components are covered and employees will have higher super entitlements over time.

Is the SG rate increasing?

Yes the SG rate will increase to 12% on July 1 2025. This is part of a long term plan to boost retirement savings for Australians.

By increasing the SG rate over time the government wants to give retirees a bigger financial buffer and improve quality of life in retirement. Employers need to prepare for this change as it affects payroll and employee benefits.

Who is eligible for super contributions?

Eligibility for super contributions generally applies to employees 18 and over. Before July 1 2022 employees had to earn more than $450 in a calendar month to be eligible but this threshold has been removed.

As a result more employees, including part time and casual workers, are now eligible for super contributions. This is more inclusive and means more of the workforce can access retirement savings.

Are super contributions mandatory for all employees?

Yes employers must make SG contributions for all eligible employees. Failure to do so can result in penalties and charges.

Employers must make timely and accurate payments into their employees’ super funds. This is to protect employee retirement savings, financial security and employer accountability.

Can employees make extra voluntary contributions?

Yes, employees can make extra voluntary contributions to their super funds. Voluntary contributions are an opportunity to get more into super beyond the employer contributions.

These can be made from pre-tax income (salary sacrifice) or post-tax income. Contributing extra early can have a big compounding effect on long term savings and retirement outcomes.

What are the contribution limits for super?

For the 2024-2025 financial year the concessional (before-tax) contribution limit is $27,500 and the non-concessional (after-tax) contribution limit is $110,000.

These limits are to prevent individuals getting too much tax benefit. Exceeding these limits will incur extra tax.

Planning is key to get as much in as possible without going over the limits.

What happens if I go over the limits?

Going over the limits triggers extra tax.

Excess concessional contributions are taxed at your individual tax rate with the option to withdraw the excess.

Non-concessional excess contributions are taxed at 47%. Manage your contributions and seek advice to avoid these penalties.

When can I access my super?

Super can generally be accessed when you reach your preservation age and retire.

Preservation age is between 55 and 60 depending on your birth year. In some circumstances such as severe financial hardship, compassionate grounds or terminal illness early access may be granted. These provisions are to help individuals in extraordinary circumstances.

What is preservation age?

Preservation age is the minimum age you can access your super when you retire. It’s between 55 and 60 depending on your birth year.

The increase in preservation age is part of Australia’s broader retirement policy to encourage longer workforce participation.

Are super contributions taxed?

Concessional contributions (before-tax) are taxed at 15% in the fund. Non-concessional contributions (after-tax) are not taxed in the fund as they are made from already taxed income.

This tax treatment is to encourage retirement savings and maintain equity in the treatment of contributions.

What is the super contribution base?

The super contribution base is the limit on an employee’s income on which the SG is calculated. For the 2024-2025 financial year it’s $62,270 per quarter.

Employers don’t have to pay SG on income above this threshold. This ensures a fair and consistent approach to super for high income earners.

Do contractors get super?

Yes, contractors who are paid for their labour are considered employees for SG purposes and are entitled to super.

The definition means individuals working under contract arrangements get the same retirement savings benefits as standard employees and financial security.

What is salary sacrificing into super?

Salary sacrificing is an arrangement where an employee elects to have a portion of their pre-tax salary contributed to their super fund.

This reduces taxable income and boosts retirement savings. Salary sacrifice contributions count towards the concessional contributions cap so you need to plan your contributions carefully to avoid going over the limit.

Is there a limit to salary sacrifice contributions?

Yes, salary sacrifice contributions are capped at $27,500 per annum. Contributions through salary sacrifice and employer contributions must not exceed this limit. Going over the cap can result in tax penalties so employees need to keep an eye on their total concessional contributions.

What is the Low Income Superannuation Tax Offset (LISTO)?

Low income earners benefit from measures like the Low Income Superannuation Tax Offset (LISTO) which is a government payment of up to $500. LISTO offsets the 15% tax on concessional contributions so low income earners can build their retirement savings. This ensures low income earners aren’t disadvantaged by superannuation taxes.

Can you access super early?

Early access to super is allowed in certain circumstances such as severe financial hardship, compassionate grounds or terminal medical condition. Early access is strictly regulated to protect retirement savings. You must meet strict eligibility criteria and apply formally to access your super early.

What is a self-managed super fund (SMSF)?

Managing your own super can be liberating especially through a self-managed super fund (SMSF). Unlike standard funds, SMSFs are private super funds where members are also the trustees, responsible for investment decisions and regulatory compliance. While SMSFs offer more control and flexibility, they require a lot of time, expertise and financial commitment.

Are superannuation earnings taxed?

Yes, super fund earnings are generally taxed at 15%. But in the pension phase, earnings on assets supporting retirement income streams are tax free. This tax concession encourages people to convert their super into retirement income streams rather than lump sums.

What happens to super when you change jobs?

Super accounts are portable, meaning you can ask your new employer to contribute to your existing super fund. This way you don’t have to open multiple accounts and reduce fees and admin costs. Portability allows you to keep your super balance consolidated throughout your career.

Originally Published: https://www.starinvestment.com.au/superannuation-australia-rate-2025/