For the roughly 80,000 people caught by the Albanese government’s changes to superannuation, the new tax arrangements could deter them from keeping excessive funds in their retirement accounts.
The government announced on Tuesday that from July 2025, earnings on super balances above $3m will be taxed at a rate of 30%, up from the current 15%.
The shadow treasurer, Angus Taylor, has criticised the move, calling it an “attack on middle Australia”, while the opposition leader, Peter Dutton, has pledged to repeal it.
But the reforms are unlikely to seriously alter the retirement lifestyle of those affected. If anything, experts say, it will be their kids’ inheritance that gets a little trim.
Who are the 80,000?
About 80,000 account holders will be impacted by the changes when they take effect from 2025, according to government figures.
The most recent Australian Taxation Office data, released for 2019-20, showed that about 87% of people with a super balance over $3m were aged over 60, according to the Grattan Institute, a public policy thinktank.
But they might not need all that money for their retirement.
Industry body the Association of Superannuation Funds of Australia (Asfa) estimates that people who want a comfortable retirement need $640,000 for a couple, or $545,000 for a single person. Many people with high incomes speak about wanting their super balance to hit the magic $1m mark before permanently downing tools.
Given super is designed to help provide a dignified and comfortable retirement, the changes are unlikely to cause any threat to that overarching goal.
Retirees tend to spend less in retirement, which is true of wealthy people who can generate returns from their large super balances to more than cover living expenses.
This traditionally leaves the balance intact to pass to the next generation.
“Is a generous tax break on balances above $3m needed to ensure people have a comfortable retirement? The answer is pretty self-evident – it’s not,” says Joey Moloney, a senior associate at the Grattan Institute’s economic policy program.
“A lot of balances that high don’t get spent down in retirement, they just end up being left as bequests to children. That’s a bad policy outcome.”
Are the changes equitable?
When the new policy kicks in, there will be a cap on the tax treatment of earnings in a super account at the $3m mark, jumping from 15% to 30%.
Importantly, those with large super balances only pay that higher rate of tax on earnings coming from assets above $3m, so they still benefit from the 15% rate.
For sums above $3m, the 30% tax rate on earnings is still far more competitive than what the account holder would be paying if they were earning that income outside super and paying the top marginal tax rate.
It is in line with the incoming stage-three tax rate applied to those earnings between $45,000 and $200,000, also 30%.
“If 30% is good enough for someone making $50,000 a year working in a retail shop, then it’s good enough for a retiree with three million bucks in super,” Moloney says.
Not-for-profit industry super funds say the changes address “an obvious system inequity”.
Asfa, which has both industry and commercial fund members, has yet to formally respond. It has previously proposed the cap be triggered for balances over $5m.
Why have these 80,000 been targeted?
Unlike the progressive nature of the personal tax system, the super system is much flatter. This means wealthier people have benefited most given they have made larger contributions, and taken advantage of the flat 15% rate.
While few people welcome an unfavourable taxation change, those with large super balances have enjoyed years of generous arrangements, which has helped grow their nest eggs.
The $3m limit isn’t indexed, which means it will capture more people as the years roll by. But Moloney says it’s no threat to those seeking to save enough for a comfortable retirement.
“This is an improvement to the super system. By posing a higher tax rate on these really high balances we are trimming off some of the worst excesses,” he says.
