Will these superannuation changes affect me?

Sascha: [00:00:02] From Equity Mates media this is The Dive. I'm your host, Sascha Kelly. Last week, Australian Treasurer Jim Chalmers announced proposed changes to superannuation that would see people with a balance over $3 million taxed at 30% instead of the current 15%. So what does that mean? If you've got $3 million in your super account and only once you hit that threshold, you're going to see earnings above that amount be taxed at a higher rate. He says that this move is about budget sustainability and equity, and he also said that in his estimations, only 80,000 Australians would be affected or the equivalent of 0.5% of the population. 3 million is a tidy sum. So let's give us all some context. The average superannuation account in Australia has 150,000 in it. If you're not feeling that you're quite at that level, that's because Forbes reports that by the age of 25 to 29, the average man will have just over $45,000 in his super account, and the average woman will have a little less at just under $39,400. So 3 million to me is a little bit of a stretch, but the headlines are in every newspaper I read and reports argue that these changes could affect a lot more than the 80,000 Australians that are estimated. After all, any change to superannuation affects our decision making around retirement planning. It's Monday, the 6th of March, and today I want to know how are the new superannuation changes going to affect me to talk about this today? I'm joined by my colleague here at Equity Mates is Darcy Cordell. Darcy, welcome to The Dive.

Darcy: [00:01:43] Thanks, Sascha. 

Sascha: [00:01:44] You roped in an expert to help us talk about this today, didn't you?

Darcy: [00:01:48] Yes, I did. I had an estimate from the ABC who I had a great chat with, but we thought we'd just clarify a few things before the interview starts. 

Sascha: [00:01:57] Yes, and I can't wait to hear that conversation, Darcy. But let's give some context of what you'd have to do to get to that $3 million. 

Darcy: [00:02:04] Yeah, so it's obviously an aspirational figure, Sascha, but to put some numbers to it, by age 25, you'd have to be earning $200,000 a year to have $3 million in super by age 67. That's assuming your contributions to super are 12% a year. Your earnings are 5% a year for the next 42 years, and you pay 1% in phase. So that's about the average. Or you could have exceptional investment returns every year and hopefully reach that a bit sooner. 

Sascha: [00:02:33] Yeah, maybe if you bet on the right horse in your self-managed super fund and it turned out getting a really great 100 bagger on Sunday. 

Darcy: [00:02:43] So yeah, it is an aspirational figure, but that doesn't mean that we shouldn't aspire to it and it doesn't mean a lot of people won't reach that and it's important to talk about it. And we also need to consider it in our planning when we do get to that retirement age. 

Sascha: [00:02:56] And Darcy does one more thing that I'd love to clarify before we get into the interview. I do find superannuation one of those topics that I just worry about when it comes out of my paycheque. I'm just putting the money in. And so sometimes the semantics about earnings and contributions just gets me a little bit confused when we're talking about this change in tax brackets. It is the change in earnings is not the change in contributions. I could have $3 million in my super account and what I could still choose to be topping it up. I'm only going to be taxed on the earnings in my super account. Is that right?

Darcy: [00:03:34] Yeah. So the laws around your contributions aren't changing. You can put money into your super, but once your balance does past $3 million, then you'll be subject to this new 30% tax on investment earnings. 

Sascha: [00:03:47] And it's only earnings once you go over that cap as well. Anything under the 3 million is still at the regular 15%. 

Darcy: [00:03:54] That's right, Sascha. And that's probably a good segue way into my conversation here with Nassim. Nassim Khadem is an award winning journalist reporting on business news across online radio and TV for the ABC. Nassim, welcome to The Dive. 

Nassim: [00:04:08] Thanks for having me.

Darcy: [00:04:09] So today we're talking about superannuation and Treasurer Jim Chalmers has announced a crackdown on super tax concessions for the wealthy, which would come into effect in 20 2526. Can you explain exactly what will be changing here? 

Nassim: [00:04:23] So as part of the proposed changes, the tax rate on earnings, on your super earnings will now double to 30%, so those with super balances above 3 million and they'll still pay 50% tax on earnings on their retirement savings, up to 3 million that thereafter they'll have to pay that higher tax rate on the remainder. 

Darcy: [00:04:43] And the same. How many Australians will these changes actually affect? What's the demographic of those people? 

Nassim: [00:04:48] Yeah, so the Federal Government has said it's likely to affect about 80,000 people. The demographics, I mean obviously people have saved $3 million in this. Is it likely to be a little bit older? Probably a little bit wealthier. But, you know, it's you know, people could make life decisions that mean that they have other debts, but they've kind of channelled their money into super. But let's just say generally we can expect that they're a little bit older and a little bit wealthier. So they've said it's going to affect 80,000 people. Now, that's based on just that kind of policy aspect. But if you look at the other effects this policy change will have, it could actually affect a lot more people. And there's a few reasons for this. One is that there's something called a transfer balance cap. So this is the amount of money you can transfer into a tax free account once you reach your retirement age. So previous changes by the Turnbull government set that balance at 1.6 million. I think that caps around currently around 1.7 million. So balances under that amount won't be impacted, but for retirees with much higher balances. There's a three tiered super tax rate and my colleague actually interviewed Curtin University tax expert Helen Hodgson, and she says that effectively you pay 0% tax on anything that you put into retirement, face up to that 1.7 million transfer balance cap. But then if she's got money and you can keep going in the accumulation phase that is being taxed at 15%, but then once you hit the 3 million mark, it's taxed at 30%. So in that way it can affect a lot more people. The changes are also not indexed, which means that it doesn't account for inflation. So you could see a lot of people hit that 3 million balance faster now than previously. 

Darcy: [00:06:40] Yeah. Okay. So as as time goes on as well, people might be more likely to hit that $3 million figure, but still the same. It is likely to be a small percentage of Australians. Why exactly is the government doing it? How how much revenue will rise? 

Nassim: [00:06:56] It's expected to raise about $2 billion in revenue. That's the figure they're putting out there. And Treasury usually expects a little bit in either give or take when they put out revenue expectations. But I've been speaking to a couple of tax advisers about this. And, you know, people have plan their lives around this. When the government makes a policy change, then they look at what they can do to preserve their investments. Right. So you might actually see a lot of people start planning, you know, tax planning, making changes to what they do. And remember, as long as you're under that cap, you can take out your money tax free. So a lot of people might be just tempted to take out the money in terms of how much revenue they will get in terms of the Y. I mean, it's a really politically easy win, right? Most people don't think that wealthy individuals should be able to get tax breaks on super. And so for the government, this was a very politically easy win. 

Darcy: [00:07:54] And can you just touch a little bit more on the reaction from the public? You mentioned an easy win for the government, but has the public responded as I'd hoped? 

Nassim: [00:08:03] I mean, I can only go off what I see on social media, which might not be completely representative of the wider public, but I mean, people really for a long time have wanted the government to crack down on this. You know, there is inequity in the system, they believe. And so the reaction has largely been supportive of this proposed policy change. Obviously, the people who it affects and their advisors are not so happy about it. And I guess the other kind of political side of this debate has been Labour went to the election saying, oh, we won't make any changes in this space. And now that, you know, got into government and they're announcing these changes. So that's been a bit of a contentious point as well. 

Darcy: [00:08:44] We'll be back with more from my conversation with him in a moment. 

Sascha: [00:08:50] Welcome back to The Dive. I'm your host, Sascha Kelly. And today we're talking all about Jim Chalmers proposed changes to superannuation. My colleague Darcy Cordell had a fascinating conversation with ABC business journalist Nassim Khadem. Let's get back to that conversation now. 

Darcy: [00:09:08] So now that we understand what these changes mean, why has the government decided to single out superannuation above other tax breaks such as housing breaks? 

Nassim: [00:09:18] I'm not. I said earlier, it's politically easy going after these gearing and the capital gains tax discount or the exemption on the family home would not be so easy, right? Politically, it would be. I mean, just look at the 2019 election. What happened to them when they proposed changes to negative gearing and CGT concessions? People didn't take too kindly. A lot of people have mortgages. A lot of people have investments in housing. You know, it's not an easy place to make policy changes because it affects so many more people. We can have a different debate about from a policy perspective, it is a good change. You know, many economists would argue, yes, you should tackle negative gearing, you should tackle capital gains tax discount. But the political side makes it very difficult. It is why you've not seen governments in the past make changes in this regard. 

Darcy: [00:10:13] Yeah, it's a very touchy subject, isn't it? That's right. Listen, people were able to access their super early during the pandemic, and that's come under criticism from the Labour government. They've now said that the objective of the $3.3 trillion super industry is under review. What do you think happens from here? 

Nassim: [00:10:31] Yeah, I mean, it's a very interesting debate. So aside from making changes to the superannuation tax breaks, Labour's been very clear that it doesn't want people to tap into or draw out their super to do things like pay for a house deposit. And this is a real ideological point of difference between the federal government and the Coalition, because you might recall that the coalition during the pandemic allowed people to access up to $20,000 of their super over two years. That resulted in $36 billion being drawn. So it shows you that a lot of Australians, you know, wanted to tap into their super to do various things like pay bills or buy a house. At the time, I mean, it was during the pandemic. So that was one thing that happened under the Coalition. The Morrison government, the former Morrison government also took an election policy to allow first home buyers to access a large slice of their superannuation for a deposit. So again, it's a big difference between them and labour. Labour has said they want to legislate the objective of super and in Parliament and Mr. Chalmers, Treasurer Jim Chalmers has said the Government will soon do that and it plans to stop Australians raiding their super for things like buying a home. And in a discussion paper released earlier this month, he suggested the need to preserve savings to restrict access to superannuation savings for a person's retirement currently. All right, so it shows you that they really have a different view of what super should be used for than the Coalition do. And it would be really interesting to see how this plays out over the coming months and how the public takes to it. Because as I said, if $36 billion of super was being drawn out, drought drawn down, a lot of it I'm assuming by younger people, that's eroding their retirement balances. But they obviously have made the decision that they need that money more now than in the future. And that, of course, has implications, though, for the government, because the government has to fund people in retirement if they don't have their own savings. And we know that the cost of these tax breaks, for example, was going to overtake the cost of the aged pension by 2050. So it's a really interesting debate that's going to play out over the next few months. 

Darcy: [00:12:58] Yeah, that's fascinating. Nassim And so interesting to say the different policies between the previous Coalition and the current Labour government. My final question for you is some reporting that we've seen has said the biggest superannuation account in Australia has $544 million in it. Do we want to speculate on who that might be? 

Nassim: [00:13:19] I mean, I'm actually trying to find a case study of someone with a super balance of 3 million and that's approved and get them to go on camera and talk about it. So that's proved extremely difficult. There's been a lot of speculation about who that might be, but I haven't seen anybody who actually has been like 100%, this is the person I suspect that person would want their privacy. Everybody wants to know who that one person is, though. If you find out, let me know. 

Darcy: [00:13:46] I will listen. Thank you so much for joining. Today. If our listeners want to hear or read more from you, where's the best place for them to go? 

Nassim: [00:13:53] Yeah. Most of my articles are up on ABC News Online, so just look up my name and ABC News and yet I'll find my articles. 

Darcy: [00:14:02] Great. Thanks so much, Nassim.

Nassim: [00:14:04] Thanks for having me. 

Sascha: [00:14:06] Well, that certainly gave me a lot of food for thought and did clarify a lot of the questions that I had about these headlines this week. If you want to keep the conversation going. Contact us by email way thedive@equitymates.com and hit, follow or subscribe wherever you're listening right now and then you'll never miss an episode. A reminder that this episode topic was actually the winner in our listener poll. We hold those every week on our Instagram page, so common follow Equity Mates. That's the handle @EquityMates on Instagram and be part of the choice in control of what episodes we choose. We'd love to hear from you and we'd love to be directed by our audience. Darcy, thank you so much for joining me today and unpacking this topic with me. 

Darcy: [00:14:50] Thanks, Sascha. Pleasure. 

Sascha: [00:14:51] Until next time.