Australian Superannuation: The first five Reasons it’s Not Fit for Purpose

By Deep T, Editing Gunnamatta

A critical examination of a $4.4 trillion compulsory savings experiment

1. The Taxpayer Is Subsidising Wealthy Superannuants

Superannuation contributions and earnings are taxed at a concessional flat rate of 15% — well below most marginal income tax rates. These tax concessions are forecast to cost the federal budget $61.7 billion in 2025-26, just shy of the $66.2 billion cost of the Age Pension itself.

For this reason, those making assertions about a need to protect superannuation funds from change or proposed change on the grounds that they are ‘our’ funds (often by quite affluent people or their representatives) are only half right. They are certainly someone’s funds, but whatever is in that fund has accumulated under very significant concessions from Australian taxpayers. These should be expecting that all policy positions made on their behalf are effective and in the interests of all Australians.

The distribution of these concessions is staggeringly regressive. According to Treasury data, the top 20% of income earners receive 54% of the benefit from concessional taxation of super contributions, and 57% of the benefit from concessional taxation of super earnings. These are people who, in most cases, would not be eligible for the Age Pension regardless — meaning the government is spending $33 billion a year in forgone revenue to subsidise the retirement savings of people who don’t need the help. In other words, the “solution” is on track to become more expensive than the problem it was designed to solve.

The government’s modest 2023 reform — raising the concessional tax rate to 30% for balances above $3 million — was projected to generate only about $2 billion annually in its first full year. This is a drop in the ocean compared to the $60 billion in annual forgone revenue. The $3 million point at which the reforms became effective represented a single average full time income directing all of that income to superannuation for more than 15 years.

Voluntary contributions receive tax benefits too. Salary sacrifice and personal concessional contributions are taxed at the same 15% rate, up to a cap of $30,000 in 2025-26 (rising to $32,500 from 1 July 2026). Non-concessional (after-tax) contributions have a cap of $120,000 per year, or $360,000 under the bring-forward rule. While these caps have been progressively tightened — a tacit acknowledgement that the system was rorting the budget — they still allow high-income earners to channel substantial additional sums into the low-tax super environment. The caps reduce the scale of the subsidy but do not address its fundamental regressivity: a dollar of concessional contribution from someone earning $250,000 still receives a 30-percentage-point tax break, while a dollar from someone earning $45,000 receives effectively nothing.

This means that those in the position to do so can, and do regularly, use the superannuation system, and their superannuation funds, to reduce quite significant amounts of tax which would ordinarily otherwise be payable. The affluent in their late 50’s and 60’s are in the position of being able to forego income by paying it into a superannuation fund and accessing it when they can access it considerably greater through the superannuation tax concession and accumulation.

For those who may be interested, a couple of ex-CEOs of Macquarie Bank are in the cohort that has $100s of millions of dollars in superannuation that has cost the taxpayer many $10s of millions maybe more. A few individuals who did not pay their way and took advantage of loopholes in super rules to further enrich themselves at your cost. Almost all affluent Australians are specifically advised to adopt such an approach to their superannuation – which is perfectly legal – by most financial advisors that concentrate on advice on how to avoid tax rather that how to invest.

2. Super Doesn’t Create Money — It Reallocates Control Over It

Superannuation also needs to be considered for its role in the money supply, or monetary system.

A fundamental but rarely acknowledged point: superannuation does not create money. It reallocates the control, timing, liquidity, and investment discretion over income that would otherwise sit elsewhere — in bank deposits, direct property and infrastructure investment, business capital, venture capital or consumer spending. The wealth would still exist; super simply changes who controls it and how it is deployed.

The Super Guarantee, which rose to 12% on 1 July 2025 compels employers to pay nearly an eighth of every worker’s ordinary earnings into a super fund. This is the government mandating that Australians hand over a significant portion of their labour income to private financial institutions. Both Treasury and the Productivity Commission have identified systemic flaws including the creation of multiple accounts, inadequate competition, and unclear regulation. Both have also noted the superior returns to Members from not-for-profit funds managers – the large-scale Industry superannuation funds – when compared with retail funds. According to APRA the asset allocation of the system at end 2024 was –

• 57% in equities (among the highest globally)
• 19% in fixed income
• 8% in infrastructure
• 8% in cash
• The remainder in property, alternatives, and commodities.

Although an average and constantly changing such an allocation gives rise to significant questions, particularly when offshore equities have grown significantly as an allocation.

The question is whether this compulsory corralling of capital produces better outcomes than if individuals made their own savings and investment decisions. The evidence is far from clear-cut. ASFA, the industry’s own lobby group, estimates the system has boosted GDP by about 2% and productivity by a similar margin but these estimates rely on assumptions about what “would otherwise have happened” that are impossible to verify, and ASFA has an obvious vested interest in producing favourable numbers.

So when you hear some spokesperson bragging in the media about the size of Australia’s savings pool, understand that superannuation did not create the money or assets in that savings pool. It would still exist without super even if in other forms and investments. This fact brings about key questions of whether the compulsory aspect of superannuation is in the interests of most Australians, and its efficiency.

As a point of clarity, Australia’s super funds are often compared to Norway’s $2.2 Trillion sovereign wealth fund. That’s comparing chalk and cheese. Norway’s fund is accumulated from net offshore income from the North Sea oilfields. It creates extra money for the Norwegian people. As Australia has net debt to the rest of the world and consistently runs a current account deficit, we cannot create a wealth fund or money from net offshore income as there is none.

3. It Favours the Wealthy and Penalises Everyone Else

Superannuation’s lack of nailed down certainty about taking pressure off the taxpayer funded and public purse, and stabilising the budget position over the longer term, means the more affluent get first and biggest positions when it comes to proceeds of the system – and they remain close to the public purse. They are the national interest is how superannuation works. The system’s reliance on a percentage-of-income contribution model means that higher earners automatically accumulate more super. But the compounding effect of tax concessions makes the inequality far worse than a simple proportional difference.

A worker earning $250,000 receives a 30-percentage-point tax break on their super contributions (from a 45% marginal rate to 15%), while a worker earning $45,000 receives just a 4-percentage-point benefit (from 19% to 15%) — or effectively zero, once the Low Income Superannuation Tax Offset is factored in. The Parliamentary Budget Office estimated that eliminating super tax concessions for the wealthiest would raise $33.6 billion over four years

Meanwhile, the average balance across industry funds is $102,061 — but the median is dramatically lower. At Australian Super, the average balance is $107,426 while the median member holds just $31,176 — 29% of the average. At Australian Retirement Trust, the median is $49,176 against an average of $141,889. A small number of high-balance members inflates the average, masking the reality that most Australians have far less in super than the headlines suggest.

The ATO does not release individual super balance data even though the taxpayer is heavily subsidising all super balances. However, we know from ATO statistics that the top 1% of super accounts hold balances well above $5 million, and the $3 million threshold for the Division 296 tax affects approximately 80,000 individuals. The tax concessions applicable to superannuation contributions are nearly as large as the Aged Pension as a budget line. The Aged Pension ranks with Defence and the NDIS.

Is this what Keating and Kelty had in mind when setting up the original super scheme ie to cement in regulation a patently inequitable scheme that disadvantages their own base?

4. It Fails Non-Working Wives, Carers, Entrepreneurs, and Divorcees

Because super is tied to paid employment, it structurally excludes anyone whose life doesn’t follow a continuous full-time employment pattern.

Women are the most affected. As of 2026, women’s median super balances at ages 60-64 are about $175,000, compared to $236,000 for men — a 20% gap. At the University of Melbourne’s HILDA survey, women’s median balance at retirement was $190,850 in 2023 — still only 61.5% of men’s $310,326

The drivers are well-documented: the gender pay gap (currently 11.5% per ABS data cited by QSuper), broken work patterns for caring responsibilities (almost 70% of primary carers are women), and the non-payment of super during parental leave. Those electing to have children will know their decision can have a post retirement income cost.

Separation and divorce further compound women’s disadvantage. Separated and divorced women aged 60-69 have median balances 38% lower than still-partnered women, and 25% lower than separated/divorced men. An AMP/NATSEM study found that a divorced mother has 68% less superannuation than a married mother from a similar socio-economic background. Although this certainly reflects the operation of other dynamics, notably divorce outcomes and family law, it still represents a fracture point on the efficient operation of superannuation, as well as its ongoing sustainability in a nation where about a third of marriages end in divorce.

Entrepreneurs and self-employed workers face their own exclusion. The Super Guarantee only applies to employers paying employees — the self-employed are not compelled to contribute, and many don’t as they need to invest in their own business, leaving them without adequate retirement savings despite being the people who take the economic risks that drive growth. Changes to CGT legislation further enhances the disadvantages of being an entrepreneur. The advantages go to those in public funded employment or the management of rentier positioned corporates in the Australian economy.

The very important drivers of growth are not only disadvantaged by superannuation personally, but to savings locked into investment policies that do not recognise national interest or economic growth drivers, this important cohort are disadvantaged by a scarceness of capital. Failure is a necessary part of the entrepreneurial process and Australia makes that even harder for those that take the risks.

5. Fund Management Is Dominated by a Handful of Mega-Funds

The superannuation industry is extraordinarily concentrated. As of 2025, the top 25 superannuation entities hold 97% of APRA-regulated assets, with the top 10 controlling 73%. There are now nine “mega funds” with more than $100 billion in assets each

Industry funds hold approximately 50% of total member benefits, with Australian Super (13.35%) and Australian Retirement Trust (11.49%) alone controlling a quarter of the entire system. Deloitte projects industry funds’ share will grow to 55% by 2045

This concentration means a vast pool of national wealth — $4.4 trillion — is controlled by a small number of fund managers who have enormous discretion over where it is invested. These managers are paid handsomely for the privilege, with senior investment executives at large funds commanding multi-million-dollar remuneration packages.

Concentration is extreme. The top 20 funds hold approximately $2.2 trillion of the $3.0 trillion in APRA-regulated assets (roughly 73%), consistent with what KPMG reported — the top 24 funds above $20 billion account for 95.8% of industry assets excluding SMSFs. Nine “mega funds” each hold over $100 billion and together account for about 57% of total super assets.
Industry funds dominate the top ranks. Six of the top 10 are industry funds. AustralianSuper alone controls 13.35% of the entire system, and ART controls 11.49% — together, a quarter of all super assets.

Public sector funds have the highest average balances ($236,428) but are concentrated in very few funds — PSSap, Military Super, and CSS serve government employees and defence personnel with relatively small membership but large per-member balances.

SMSFs are excluded from this list but represent 25% of total super assets at approximately $1,013 billion, with an average balance of $849,678 — overwhelmingly held by wealthier individuals.
Studies have indicated that Australians pay higher fees for the management of their superannuation than like funds management operations elsewhere in the OECD, further underlining questions about the compulsory aspect of the system and the value for ordinary Australian contributors. The age of AI and Exchange Traded Funds (ETFs) brings further questions about the efficiency of the Australian system.

Australian super (industry average, all products),”0.86–1.1%”,
Australian MySuper (default balanced),”0.87%”
OECD average (pillar II DC systems),”0.7%”, Average across mandatory DC systems;

The big lesson so far, besides the first 5 specific problems with compulsory superannuation, is that the superannuation balance doesn’t just contain actual contributions and income on those contributions it also contains taxpayer contributions and the income thereon. Taxpayer contributions are supported partly by those disadvantaged by super. That’s ironic.