Q1. Why does the Federal Government make changes to super?
When the government makes changes to super, the overall aim is to ensure the system is operating effectively and efficiently, both for individuals and as a broader system. Following on from the Retirement Income Review in 2020, the Coalition Government re-confirmed their commitment to super and the Age Pension as appropriate ways to fund retirement, along with private savings and investments.
The current government has recently consulted on a draft objective for the superannuation system, with the goal of creating a shared understanding of what superannuation legislation is trying to achieve. The proposed objective is "to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way."
When we look back at super changes in recent years, we can see how positive many of these are. Things like increasing the Super Guarantee contribution level to 12% by 1 July 2025 and allowing some members to bring forward unused concessional contribution caps. These changes make it easier for more Australians to contribute to their super savings at rates that will support their retirement.
Q2. What are the latest changes the Federal government is proposing to the super rules?
From 1 July 2025, the government will reduce the tax concessions available to individuals with total superannuation balances above $3 million. Investment earnings on total superannuation balances over the $3 million threshold will be taxed at 30%. The current tax rate for earnings is 15% for accumulation accounts and transition to retirement pensions, and zero for retirement pensions (which are subject to a transfer balance cap of $1.7 million for 2022-23, increasing to $1.9m from 1 July 2023). Under the new rules, these rates will continue unchanged for balances under $3 million. Defined benefit interests will also be subject to this measure.
These changes are not yet legislated. If they are passed by Parliament, around 80,000 Australians can expect to be affected in 2025-26, which is around 0.5% of Australians who have savings in super.
Q3. How will the proposed changes to tax concessions help the superannuation system improve?
Research by The Australia Institute shows the annual cost of super tax concessions ($52.6 billion) is almost on par with the value of the entire age pension program ($55.3 billion). Federal Treasurer Jim Chalmers estimates that the government are on track to spend more on super tax concessions than the Age Pension by around 20501.
These latest changes are geared towards high-net-worth members who can continue to save outside of the system, to avoid having tax concessions used to preserve more of their wealth for estate planning purposes. By making these changes the government is seeking to safeguard the sustainability of both the Age Pension and superannuation savings, with the aim of helping all members fund their retirement goals.
Q4. Is super still a tax-efficient way to save for retirement?
Having savings in super gives members lots of benefits including access to investment expertise at low fees. Super can also offer much better tax outcomes with saving and investing outside of super. Members can potentially benefit from concessional tax rates on their super contributions, particularly when they make extra voluntary contributions. This can help them save on the tax they pay on income during their working life. Members also benefit from concessional rates on the earnings from their investments in super, helping to boost after-tax returns.
Once retired, members pay zero tax on earnings for super balances held in retirement income stream accounts, up to a cap ($1.7 million for 2022/23). This cap will increase to $1.9 million from 1 July 2023. They can also make tax-free withdrawals from a retirement income stream account they can set-up using their super savings. SASS does not offer a retirement income stream account, so it’s worth looking at potential options with another super fund such as Aware Super.
Tax advantages are just one reason why it can be good for you to stay in super in retirement. You also benefit from professional support, investment expertise and peace of mind that your money is invested with a highly regulated financial services provider.
Q5. Is there a risk that future changes to super could disadvantage SASS members?
Changes in legislation can be a risk for any type of saving or investing. Staying engaged with your money - wherever it’s invested - is the best way to keep informed and manage the impact of any changes in policy.
When changes like this are being made it can feel like a loss of control - in our experience the more our members engage with their super and how it can play a role in their future, the more in control they will feel.
A retirement income account offers you the flexibility to access more or less of your super as and when you need it - subject to minimum withdrawal requirements. So it’s a good option for keeping you in control of the part of your income coming from super.