By Darren Withers

For the last thirty years, the superannuation cake has been cut the same way. The government gets a little 15% slice, and the rest is ours.

Now, on superannuation’s 30th birthday, there’s talk of the Government taking a bigger slice. Not from all of us. Just from those people with super balances over $3 million.

The proposed tax is designed to levy an extra 15% tax on earnings from super balances above $3 million, on top of the 15% that is already levied. While most would agree that $3 million is more than needed to fund a comfortable retirement, there are some concerning aspects to the proposal.

Firstly, there is no plan at this stage to index the $3 million threshold. Although the tax is expected to initially impact only the wealthiest 80,000 superannuants, by the time the first calculations are made in July 2026, the number impacted could be much greater. And the number of people affected will grow over the coming decades.

For those that are 30 now, if we assume average inflation of 2.5%, the $3 million threshold will be the equivalent of only $1.4m by the time they reach 60. This would have wide ranging impacts.

Secondly, the current plan is to tax the increase in the fund balance. This is controversial as it involves taxing increases in asset values before they have been sold. Imagine a super fund is invested in a property where the value increases, but the property is not sold. The fund member will have a tax bill, but because the property is still held, they may not have the cash to pay the tax. They could be forced to sell the property.

There are other issues to be dealt with, including whether exemptions should be given to people facing particular challenges. For example, someone who is permanently disabled will often receive a lump sum payment from an insurance claim. Currently, they are allowed to transfer a large compensation payment into super. Will the increase in a super balance following the receipt of a disability insurance payout be subject to this new tax? At the moment, it isn’t clear.

The good news is that like all new proposals, this measure and any others that come along need to go through a process. This involves government consultation with experts from the financial services industry to address concerns and issues. It then needs to get through the parliamentary process and could be subject to amendments, or even defeated.

Therefore, it is never worth worrying about these changes until they become law, and we have clarity on the impact. It is only once they are legislated that people should address how this affects their strategy and make any necessary alterations.

While this new tax will not initially affect most of the population, it has led to many wondering where the tinkering with super might end. “What’s next?” has become a familiar cry around the country.

Last year, compulsory super turned 30 years old. The $3.3 trillion that Australians have amassed in retirement savings is a significant pool of capital and will attract attention from future governments. With this amount of money, even a minor change can have a massive budgetary impact.

Does this mean we should stop using super? We do not believe that people should. While some tweaks to the system are inevitable, the fact remains that super will still be a far more attractive structure to hold retirement savings than any other option available.

What the proposed changes to super laws do demonstrate is the importance of having a good financial adviser. A trusted adviser, backed by a team of skilled specialists, can anticipate changes and discuss ways that strategies can be fine-tuned for the future.

If you have any questions about super legislation, be sure to reach out to your Elston adviser and they’ll be more than happy to help.

If you would like more information please call 1300 ELSTON or contact us.