Calculators

Superannuation: The 12% Rate, the Caps, and the Levers That Matter

How super is taxed, what the contribution caps mean in practice, and the handful of decisions that move a retirement balance materially.

9 min read · published 2026-09-12

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What super is and why it is taxed the way it is

Superannuation is a compulsory, tax-advantaged savings system. Your employer must contribute 12% of your ordinary time earnings to a fund you cannot touch until at least 60, and in exchange the money is taxed far more lightly than income in your hands.

The tax advantage comes in three stages. Contributions made from pre-tax income are taxed at 15% inside the fund rather than at your marginal rate. Earnings inside the fund during accumulation are taxed at 15% rather than your marginal rate. And once you move to a pension account in retirement, earnings become tax-free and withdrawals after 60 are generally tax-free as well.

That structure is why super is worth using even though the money is locked away. Someone on a 30% marginal rate who sacrifices salary into super moves a dollar from a 30% environment into a 15% one, then lets it compound in a 15% environment rather than one taxed at their full rate.

The caps, and what happens if you exceed them

Concessional contributions, employer super guarantee, salary sacrifice and personal deductible contributions, are capped at $32,500 for 2026-27. On an $85,000 salary, employer contributions use about $10,200 of that, leaving roughly $22,300 of room for extra contributions.

Exceeding the cap does not mean the money is lost, but the concession is. The excess is included in your assessable income and taxed at your marginal rate, with a 15% offset for the tax the fund already paid. In practice you end up roughly where you would have been had you never contributed, minus the flexibility.

Unused cap can be carried forward for five years if your total super balance was under $500,000 on the previous 30 June. This is genuinely useful for anyone with an uneven income. A year with a capital gain, a bonus or a redundancy payment is exactly when a large catch-up contribution does the most work.

Fees compound against you

Fees are the most reliably underestimated variable in retirement planning, because a percentage sounds small and compounds like a return in reverse. On a $200,000 balance, the difference between 0.6% and 1.6% in total fees is $2,000 in the first year. And roughly $150,000 over thirty years once the forgone compounding is counted.

The fees to check are administration fees, often a flat dollar amount plus a percentage, and investment fees, which vary enormously between index-tracking and actively managed options. Insurance premiums are deducted separately and can run to several hundred dollars a year.

Multiple accounts multiply all of this. Every account from an old job charges its own administration fee and often its own default insurance premium, quietly draining small balances for years. Consolidating is usually correct, but check what insurance you would lose first, particularly if your health has changed since the cover started.

The investment option matters more than the fund

Most of the variation in long-term outcomes comes from which investment option you are in, not which fund. A high-growth option holds more shares and less cash and bonds; it delivers higher average returns with deeper falls along the way. A conservative option does the reverse.

The default option for most members is balanced, which is a reasonable middle. Whether it is right for you depends mostly on how long until you need the money. Someone in their twenties has forty years for a market fall to recover; someone two years from retiring does not, which is why moving to a more defensive option nearer retirement is common advice.

The mistake that does lasting damage is switching to cash after a market fall. It converts a paper loss into a permanent one and misses the recovery, which historically arrives faster than people expect. If a falling balance would make you switch, you were in the wrong option before the fall.

Insurance inside super

Most funds provide default death and total and permanent disability cover, and many provide income protection. It is paid from your balance rather than your pocket, which makes it easy to ignore in both directions. People with dependants often have too little, and young members without dependants often pay for cover they do not need.

The advantage of cover inside super is that premiums come from pre-tax contributions and do not affect household cash flow. The disadvantage is that they erode the balance this whole system exists to build, and default definitions are often narrower than a retail policy.

The review worth doing once a year is simple: does the cover match what your household would actually need, and are you paying for it in more than one fund at once?

Questions people ask

What is the super guarantee rate in 2026-27?
12% of ordinary time earnings. The rate reached 12% on 1 July 2025 after a decade of scheduled increases and is not currently legislated to rise further. It stops once your earnings reach the maximum contribution base, which is $270,830 for 2026-27.
How much can I put into super each year?
The concessional cap is $32,500 for 2026-27, covering employer contributions, salary sacrifice and personal deductible contributions together. Non-concessional contributions, made from money already taxed, have a separate and much larger cap, with bring-forward rules allowing several years at once for those eligible.
When can I access my super?
Preservation age is 60 for everyone born after 30 June 1964, and you also need to meet a condition of release. Retiring, starting a transition to retirement pension, or turning 65, at which point access is unconditional. Early release is possible in narrow circumstances such as severe financial hardship, terminal illness or permanent incapacity.
Is salary sacrifice better than a personal deductible contribution?
They produce almost the same tax outcome. Salary sacrifice is arranged with your employer and comes out before tax automatically; a personal deductible contribution is made from your own account and claimed on your return. Sacrifice is simpler if your employer supports it; a personal contribution is more flexible because you can decide the amount after you know your income.
Should I consolidate my super accounts?
Usually yes, because each account charges its own administration fee and often duplicate insurance premiums. Check two things first: whether you would lose insurance cover you want, particularly if your health has changed, and whether any account has an exit fee or a defined benefit component worth keeping. Consolidation can be done through myGov in a few minutes.

Sources

General information only, not personal advice. See the disclaimer. Read how this material is checked.