Whose super is it? And what’s just changed?
Last week, after much heated debate, the Albanese Government announced a change to the way super will be taxed. Even more heated debate followed. And most of it seemed to be focussed on ‘whose super is it’ and ‘is the government coming after your money?’ debates.
Today we explain the detail of the new super rules, who will be affected and by how much.
But we also drill down more deeply to explore some of the ways you might maximise the amount you have, without penalty.
Last Wednesday Federal Treasurer Jim Chalmers announced changes to the way super will be taxed from 1 July 2025. It seems that, rather than wait and announce this change as part of the May Budget, the Government wants to stop speculation and simply tell those affected what will happen.
It can be difficult to separate facts from debate when it comes to changes to retirement income rules, so here are the facts:
Who will be affected?
Those superannuants who have super balances in excess of $3 million. The limit applies to your total superannuation balances , including income streams, not just the amount in each account. This is estimated, by Treasury, to be 80,000 Australians or 0.5% of Australians with super. So 99.5% of those with money in super will not be affected.
What is the change?
Those accounts that are still in accumulation (saving) mode will be taxed at the rate of 30% on earnings on the amount of super they have in excess of $3 million. They will still be taxed at the current rate of 15% for the first $3 million as they are now. If accounts are in an income stream such as an account based pension, no tax is paid on the earnings. .
Why is this change being made?
This cap on 15% taxation will add about $2 billion per annum to Federal Government coffers. As part of the proposed consideration of the purpose of super , the Government has noted that it believes a $3 million nest egg is sufficient for a dignified retirement. And that higher amounts should not be in a tax-favoured environment when the median savings in super for men and women about to retire (aged 60-64) are $138,000 and $108,000 respectively.
So when we remove the hype from some of the reporting, it is not a case of any government ‘stealing’ someone’s nest egg. It is an increase in the rate of taxation on the earnings on the amounts above a $3 million cap for less than one per cent of the population.
There really is no question that your super remains your money, under your control.
Which leads us to perhaps the most important point in this discussion, which is how ‘control’ of your super can be exercised.
Top level super rules
What you can’t do:
- Access your balance, except in exceptional circumstances, before Preservation Age.
- Avoid Tax before this – you will pay tax on the earnings on your super of 15% super in the accumulation phase, but not in decumulation (commonly understood to mean the activation of an Account-based Pension)
What you can do:
- Choose you super fund
- Decide on your investment strategy
- Decide on the investment products and asset classes you want
- Add certain extra contributions
- Withdraw lump sums when you have retired and reached preservation age
As you can see from the above points, whilst there are a few restrictions, there are also a lot of ways you can actively manage this money both before and after preservation age. Putting your money into super should never mean a ‘set and forget’ mindset about these savings.
What is ‘active’ super management?
There are many strategies and actions you can take to improve your super balance. We asked our advice team which questions about super they get asked the most.
Starting next week we will share their answers and case studies in a two-part summary over the following two weeks:
The first article will address Your super and the Age Pension – during accumulation, decumulation, and ways some people can maximise their entitlements.
The second part will look at your super and your mortgage. Many retirees reach Preservation Age and simply want to use now accessible funds to pay down their mortgage, particularly in the current interest rate climate. But is this always the smartest way to respond?
Staying in control of your super is essential to reduce money worries in retirement.
Super, Age Pension entitlements and private savings form a complex mix, with multiple rules. Knowing these rules is your first step to improving your retirement finances.
There are many options available to maximise your income or financial wellbeing. If you would like to understand more about super, please talk to us today.
Your comments on the proposed changes to to tax on superannuation seem to parrot the government’s marketing statements to the general pre-retirement Australian population who have accumulated little in superannuation, are self employed, and may have pursued other strategies to fund their retirement, such as investment in property.
The segment of the population already in retirement has been ignored, particularly those with an SMSF who retired in 2017 or before, who are restricted by a $1.6m pension balance cap that is not indexed. Not only are these retirees already paying 15% tax on earnings above the the balance transfer cap ratio, but if they have been diligent in trying to grow the balance, and grow earnings by taking higher investment risks to offset inflation, they are facing paying tax at the 30% level at some time through their retirement.
The impact of potential tax on unrealised capital gains has been totally ignored in your statement, particularly in relation to the inflation offset strategy noted above.
what is “preservation age”
HI John, thank you for your query! We’ve actually covered off the preservation age HERE.
Treasurer Chalmers admitted in Monday’s question time that 10% of super accounts will have a balance of more than $3 million in 30 years time.
An account holder, entering retirement with a balance of $3.1 million in 2053 will need to withdraw an inflated $152,375 to provide the inflated ASFA comfortable living standard for a couple. The inflated pension income a/c limit will be $3,693,254, so no 15% tax on the excess. The $3.1 million drawn down at inflating the ASFA retirement standard will only last 34 years until the balance is 0.
If the cap is set at $2 million and indexed the $3.1 million will last 35 years to 0 balance. The indexed cap would be $4,345,005 a in 2053 and $10,742,631 at the depletion of the balance in 2088. By 2088 the ASFA retirement standard for a couple will be $376,733. It makes sense to index it from the start at $2 million.
Assumptions are an average annual CPI increase of 2.62% (the 30 year average for the CPI index) and an earnings rate of 6%.
How Will Commonwealth deferred superannuations be calculated for the purpose of reaching and exceeded 3 million dollare
Hi Lindsay, thank you for you question! At this stage it is too early to know the specifics. This proposal is yet to be even tabled in parliament let alone passed as law so we’d be speculating at best. Watch this space to see how or even if this proposal moves forward to understand everything.
what are your rates and how do you charge for them
Hi Garry, thanks for reaching out! Our fees vary depending on which service you would like to take up. CLICK HERE to view our fees for assistance lodging an Age Pension claim and then CLICK HERE for the fees for our consultation services.
Hi, I am 67 male still working if i take out my super about $120,000 i want to retire in about 18months will centerlink penalise me when i apply for pension.
Hi Paul, thanks for reaching out! Centrelink will not penalise you for withdrawing your superannuation. Super and money in the bank are assessed the same way so it makes no difference to them. If you spend the money, Centrelink may ask you to provide evidence of what it was spent on to ensure it wasn’t invested in another asset type.