super tax concessions, retirement equity, super tax changes

Super tax concessions are changing

But are they fair? 

As we reported last week, there will be a change to how super is taxed for with balances of more than $3 million. The proposed legislation will be scheduled to commence on 1 July 2025.

There has been a lot of highly political debate on this change. The Greens feel the change does not go far enough. Their policy, instead, is to remove all tax concessions for super balances higher than $1.9 million, which is also the new Transfer Balance Cap (from 1 July, 2023).

So there is no guarantee that the Labor Government will get its super legislation through both houses of parliament, as they have promised, before the next Federal Election in 2024.

If the legislation is successfully passed, Peter Dutton has stated that an incoming Coalition Government would repeal it.

That’s the politics of the situation.

A much bigger and more important discussion is how fair these different settings are. Let’s start with the facts of how much retirement income benefits cost the country and who benefits most.

Top level numbers

In the most recent Federal Budget:

  • the Age Pension cost $55 billion
  • the cost to Treasury for superannuation concessions totalled $52 billion 

Projections by The Australia Institute show expenditure on the Age Pension slowing over time, while expenditure on super concessions will rise. The cost of super concessions is predicted to overtake the cost of the Age Pension by 2050 – although this trajectory may now be modified by the new $3 million cap.

Who receives the Age Pension?

As it is means tested, those with assets above the upper threshold are ineligible.

Current disqualifying thresholds (as of March 20, 2023)  are:

Single, homeowner$634,750
Single, non-homeowner$859,250
Couple (combined), homeowner$954,000
Couple (combined), non-homeowner$1,178,500

Who receives the concessions on super?

This is harder to define, but the Guardian recently reported that 55% of super concessions benefit the top 20% of income earners, with 39% of all benefits going to the top 10% of income earners. Additionally, males are favoured, receiving 61% of concessions, while females receive just 39%.

Depending upon your own financial situation, you may have a strong point of view on how equitable this. 

Some of our readers have commented that  

‘It is an unfair hit on those who had worked hard for their money.’

Meanwhile Australian Council of Social Service (ACOSS) CEO, Cassandra Goldie, stated on behalf of welfare recipients:

‘With one in eight people in Australia living in poverty and many people under financial pressure, the Government is right to reduce unfair tax breaks for the wealthiest in our society.  Three million dollars is far more than anyone needs to fund a decent retirement, which should be the goal of superannuation – not tax avoidance or bequests for adult children.’

What’s your position in this debate? Do you agree to a higher tax on earnings in super for those with higher balances? If so, how high? The $3 million due to be legislated by the Labor Government? The 1.9 million suggested by the Greens? Or nothing at all, as is the current position of the coalition?

If you find it hard to understand the different caps on super (transfer balance caps or contribution caps) and other specific contribution and withdrawal rules, we don’t blame you. It can and does get very complex.

Help is at hand, though, in our tailored superannuation advice consultations. Find out how today.

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