Changes to Super - What You Need to Know

For anyone with a passing interest in superannuation, the announcements made by the Federal Government over the last few days would have been interesting. Despite weeks of the Government stating they wanted to legislate the purpose of superannuation before considering any changes to tax concessions, last week they announced changes to superannuation designed to generate $2b in extra tax revenue every year.

Naturally any announcement of changes to superannuation and related tax rules results in anxiety and frustration that the goal posts are moving, yet again, and this announcement is no different. As the days have gone on, we now have a little more of the detail at our fingertips, and the devil most definitely is in the detail.

Firstly, it’s important to acknowledge that the Government’s announcement is a proposal only. It will need to go through the usual parliamentary process and if legislated as announced, the changes will commence from 1 July 2025 (ie after the next Federal election). 

Secondly, the Government’s announcement proposes changes to the tax treatment of the earnings of superannuation funds for members with large balances only. The end result is that superannuation will still be a concessionally taxed vehicle for retirement savings but, for some, it won’t be as concessionally taxed as it is now.

Importantly, the Government has not proposed limiting the amount that can be accumulated within the superannuation system, members will not be required to withdraw money from superannuation during their lifetime, and they have not proposed changing the tax free status of eligible superannuation withdrawals from age 60 onwards.
This means superannuation fund members do not need to do anything right now.

What is the proposal?
When superannuation fund members are working and making contributions to superannuation, their superannuation balance is held in an account called an “accumulation account”. Currently, earnings on balances in accumulation accounts are taxed at the concessional rate of 15%. The Government has proposed changing this tax treatment, but only for members with large balances. Specifically, the tax rate applied to earnings on balances above $3m will be 30% after 1 July 2025, instead of 15%.

And note that it’s $3m per person, not per fund. That means a couple could still have nearly $6m in super before being impacted, as long as it’s split evenly between them and neither goes over $3m.

The $3m includes all of a member’s super, ie both their pension and accumulation accounts combined. It’s not restricted to just their accumulation accounts.

Initial polls on this suggestion show that most Australians are in favour of the move. However, one striking detail for the younger generations to understand is that the $3m cap won’t be indexed – so it won’t increase with inflation each year. Clearly in a few years, this will be worth a lot less than $3m today, capturing a lot more people who may not feel that they are particularly wealthy. That’s why most super thresholds are automatically set to go up with inflation. We would expect that many people will fall into this $3m zone in 10 and 20 years’ time simply due to contributions and investment returns.

Where to from here?
Any of our longer term clients would know that we at Schuh Group are big fans of using superannuation as a tax-friendly investment vehicle. This proposal won’t change our minds on that, and it shouldn’t change yours either. We’ve been fielding phone calls even from younger members who understand the $3m cap and the impact this might have on them over time. You may be feeling that your faith in the system has been knocked since this announcement but we’d still urge you to remember the concessional tax treatment on super contributions and earnings. Given that any tax rules may change over time and with different governments, a tax break today will be worth dollars to you tomorrow. And when it comes to tax breaks, a bird in the hand is definitely worth two in the bush.