Turns Out Those Super Changes *Might* Actually Affect You, If You’re Lucky

super changes explained

You’ve probably heard a lot of noise about changes to superannuation tax, particularly from the opposition who is keen to represent Labor’s modest alterations as an attack on regular, multiple-yacht-owning, Aussie battlers.

The changes, announced by Prime Minister Anthony Albanese on Tuesday, will see superannuation taxes double in 2025 from 15% to 30% — but only for people with a super balance of $3 million and over.

The move will affect just 0.5% of the population, according to government data. The vast, vast majority of Australians do not have anything like that amount saved away in their super. The government has said that it expects to net an extra $2 billion in tax revenue per year, helping to balance the books after the COVID pandemic.

“Since coming to government, we’ve been up‑front about the challenges facing the economy and the budget. We inherited a trillion dollars of debt as well as growing spending pressures in defence, health, aged care and the NDIS,” Treasurer Jim Chalmers said in a statement.

“These challenges mean we need to make responsible budget choices to ensure generous superannuation tax breaks are better targeted and sustainable.”

So, why all the fuss and how is this really going to affect you? Here’s what you need to know.

Super Changes

As it stands, special allowances for superannuation and retirement make these kinds of savings some of the most lucrative you can get.

This is all thanks to changes made by PM John Howard, back in 2006, who legislated that withdrawals from super for retirees over 60 would be tax-free.

Because of existing laws that say that money in the retirement accounts of those in that demographic can’t be taxed, he essentially created a loophole for people to earn and keep as much money as they like without paying tax on it, simply because they were over 60.

Super is normally taxed at the low rate of 15%, but there were suddenly a whole lot of people making a whole lot of money tax-free. The person who finally put a stop to this cash grab? Scott Morrison.

In 2016, Morrison capped the amount that could be transferred into one of these special retirement accounts at $1.6 million, a rate that is adjusted each year. Although there were critics at the time, most agreed this was a sensible idea.

Chalmer’s released figures on Tuesday showing that revenue lost to the tax office from these sweet deals was now hitting around $50 billion each year. At the rate it’s going, tax revenue not collected because of these arrangements will cost more than the entire Aged Pension budget by 2050. This is why he’s so keen to rebalance the “fairness” and “sustainability” of super.

What Are the Superannuation Changes?

So, from the 2025-2026 tax year, people who have more than $3 million in their superannuation account will pay a 30% tax on the interest that this money makes.

Money under this threshold will still be taxed at the normal rate of 15% and it will only apply to earnings in the future — not retrospectively.

Plus, these changes only apply while that person is working and adding money to their super. Because those tax breaks we spoke about earlier still exist, you will still pay nothing on super investments under $1.7 million after retirement.

Roughly 80,000 people will be affected by these changes, say the government. 33,500 of those people already have a super balance of $3-$5 million, 16,500 have $4-$5 million, 23,000 have $5-$10 million, and some 7000 people have more than $10 million.

Chalmers noted that there are 17 people out there with more than $100 million in their super account, and one person who has $400 million (and blatantly just rorting the system — you gotta respect the hustle).

“That’s not what superannuation is for,” Albanese said about these savers with ludicrously well-feathered retirement nests.

The government’s 2020 retirement income review found that high-income retired Australians already earn as much in investment income as they withdraw from their super.

Given that the average male enters retirement with just $358,000, while the average female enters retirement with just $281,700 (hello, gender pay gap), these changes are not going to come close to affecting regular people.

The Association of Superannuation Funds of Australia estimates that you need $545,000 for a single person and $640,000 for a couple to live a comfortable retirement. So, even if most of us were to reach this ‘comfortable’ level, it’s still far below the $1.7 million tax-free threshold, and far below the $3 million that could become liable for this higher tax.

Why Is the Government Making These Changes?

All in all, it’s not a massive shift, and something that some commentators have suggested they could have gone a lot harder on, given how lax the taxes on super are. In many ways, Chalmers is simply picking up where Morrison left off.

But it’s smart politicking. The opposition have basically spat the dummy over this, wheeling out Angus Taylor to do the rounds decrying Labor as a bunch of frauds and liars – which is kind of exactly what Labor hoped they would do.

“If [Opposition Leader] Peter Dutton and Angus Taylor want to go to the wall for these half a per cent of people with very large superannuation balances – the party that gave us a trillion dollars in debt want to borrow even more money to give for these unaffordable tax breaks — [they can],” Chalmers said in particularly strong terms.

Essentially, Labor has forced the Coalition to come out fighting for the big guys, putting them vastly at odds with the public over who exactly should be the focus and priority of government policy.

However, there is a strong chance this could backfire. The headline message that ‘the government is coming for your super’ is a dangerous one, as having money taken off them is not a popular concept with voters, particularly if that’s money they’ve saved all their lives. This is especially true as the government, in the lead up to the election, made a promise not to touch super, something they appear to have changed their tune on, despite these being just marginal changes. The inability to trust Labor on financial matters is a powerful attack that the Coalition are hammering hard.

Chalmers has said that he accepts Labor could suffer in the polls because of the change but that it’s a modest alteration that most Australians, he thinks, will agree with.

“Sometimes doing the right thing, taking the right path is not always the path of least resistance,” he has said. “But we’ve got a responsibility to the Australian people to make the right decision even if it comes at a political cost.”

Who Will Be Affected by the Changes to Super?

While the government has said that just 80,000 people will be affected by the changes, they’re talking in the present tense. In the future, it’s likely that more people will start to be affected.

The $3 million threshold for the 30% tax rate is not indexed, meaning it’s not tied to the rate of inflation. As inflation goes up over time, money becomes less valuable, and $3 million, in today’s figures, could become more like a $1 million equivalent in the future.

That’s going to affect far more than 0.5% of the population, according to an analysis by the Financial Services Council, which represent big retail superannuation funds.

Their findings suggest that 186,437 people currently aged 35 and over are expected to be hit by these changes over their lifetimes. If you extend that to workers over the age of 25, that number rises to 526,071. While this has shaped up to be a classic ‘rich boomers vs the rest of the population’ debate, young people will actually be the most affected by these changes.

“Leaving the cap stuck at $3 million will mean that in today’s dollars, a 30-year-old will have a real cap of around $1 million, calling into question the intergenerational fairness of an unindexed cap,” Financial Services Council chief executive Blake Briggs has said.

“Caps in the superannuation system are indexed to ensure generational fairness so that each generation gets the same outcomes and benefits from the superannuation system.”

Chalmers has said that he doesn’t believe the non-indexing of the cap is a bad thing, as rebalancing the books and claiming back some of those ‘lost’ taxes in the “already generous” super system is a priority if the government is to operate sustainably.

“A future government may decide to change the $3 million threshold, but the way that I’ve designed it, in conjunction with Treasury colleagues, is for a $3 million threshold. If some future government decides that they want to lift that, then they can pay for that, but that’s not our intention,” he has said.

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Related: Labor Is Introducing Legislation to Close the Gender Pay Gap

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