Superannuation is Increasing to 12% – What It Means and Why It Matters

From 1 July 2025, Australia’s Superannuation Guarantee (SG) rate will increase to 12%, marking the final step in a long-term strategy to strengthen our retirement system. This may seem like a minor adjustment, but it’s a major milestone with meaningful benefits for workers, the economy, and future generations.

What Is Superannuation?

Superannuation is a compulsory retirement savings system unique to Australia. Since its introduction in 1992, it has ensured that employers contribute a percentage of each employee’s ordinary earnings into a super fund, which is invested for long-term growth. It’s designed to help Australians retire with dignity and financial independence, reducing reliance on the Age Pension.

A Timeline of Key Increases

Australia’s SG rate has gradually risen since its inception:

Why 12% Matters

Over the course of a working life, even small increases in super contributions can add up to tens of thousands of dollars extra at retirement. The 12% rate will help:

• Grow retirement balances
• Reduce financial stress later in life
• Lessen pressure on the public pension system

How Does Australia Compare?

Australia’s superannuation system is internationally recognised as one of the world’s best. According to the Mercer CFA Global Pension Index, it ranks among the top countries for sustainability and adequacy.

Here’s how we stack up:

• Australia: Compulsory employer contributions, soon to be 12%
• UK: Auto-enrolment introduced in 2012 with a combined minimum of 8%
• USA: Voluntary 401(k) contributions, with inconsistent coverage
• NZ: KiwiSaver is voluntary but incentivised with government contributions; however, savings levels are generally lower.

Australia’s model ensures virtually every employee is saving for retirement, which few other countries can claim. That gives Australians a huge advantage in planning for life after work.

Tax Benefits of Superannuation

Superannuation isn’t just about saving—it’s also a tax-effective way to build wealth for retirement:

• Employer and salary sacrifice contributions are taxed at just 15%, which is lower than most people’s income tax rate.
• Low-income earners may receive a government refund of contributions tax through the Low Income Super Tax Offset (LISTO).
• Investment earnings inside super are taxed at a concessional rate of 15%, and tax-free once you retire and meet conditions.
• Withdrawals from super after age 60 are generally tax-free, making it a highly efficient way to access retirement income.

These tax advantages help your savings grow faster and mean more money in your pocket when you retire.

Broader Benefits

Superannuation doesn’t just help individuals—it also benefits society:

• Reduces reliance on government welfare in retirement
• Stimulates long-term investment through super fund activity
• Supports economic growth and stability
• Improves intergenerational equity

Will the Rate Increase Again?

At this stage, 12% is the final legislated increase. There are no plans to raise it further, although debate continues. Some argue 12% should be the minimum, while others are cautious about the impact on wages and business costs.

Meanwhile, attention is turning to making super fairer and more inclusive, with proposed reforms like:

• Paying super on paid parental leave
• Closing the gender super gap
• Encouraging voluntary contributions and financial literacy from a younger age

Final Thought

Superannuation is one of Australia’s greatest policy innovations. Increasing the rate to 12% ensures that more Australians can retire with confidence, independence, and dignity. It’s a quiet achiever, working in the background while you build your career, ensuring your future is more secure.

Disclaimer: This blog post is for informational purposes only and does not constitute financial, tax, or legal advice. Please consult a qualified professional for advice tailored to your personal circumstances.