Will Labor’s proposed superannuation changes affect your super balance?
While nothing is official yet, here's what changes Labor wants to make to superannuation and who these changes will impact (hint – likely not you).
The official objective of super
Labor wants to review and legislate the official objective of superannuation in Australia. They've suggested that the purpose of superannuation is to "preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way".
One main thing to note in this suggested objective is the part about "preserving savings".
Labor wants to limit the ability of future (and current) governments to introduce policies allowing Australians to access their super early, like what we saw during COVID-19. During the pandemic, the Liberal government let Australians access up to $20,000 from their super to assist with bills and other immediate expenses when a lot of people were out of work.
However, the criteria around who could access their super and for what purpose was quite loose. As a result, we saw millions of Australians raid their super and more than 163,000 people withdraw their entire balance.
By legislating the official objective of superannuation to be more strictly around preserving the savings for one's retirement, Labor aims to stop future similar policies allowing people to access their super early and jeopardise their future retirement savings.
This won't necessarily have a direct or immediate impact on you. However, it could stop any potential future policies that let you dip into your super for things like a house deposit.
A limit to super tax concessions
Concessional super contributions are taxed at the lower rate of 15% as opposed to your standard income tax rate. Concessional contributions include those made by your employer under the super guarantee, and extra contributions you either make under a salary sacrifice arrangement or which you claim a tax deduction for.
By having these taxed at 15%, it's an incentive for people to add more money into super as they're paying less tax on the money than they would if it was kept outside of super and taxed at your marginal tax rate.
However, this policy has also allowed some people to use super as a tax haven and build up huge super balances – I'm talking about $1 million, $5 million and $50 million balances. These tax concessions are costing the government billions of dollars each year – almost as much as it costs to fund the age pension.
To tackle this, there are suggestions that Labor wants to place some kind of balance limit on these concessional contributions. While it's not exactly clear what this would look like, it's safe to say it will only impact those with excessive super balances in the tens of millions of dollars.
The government argues that if you've got, say, $50 million in your super, it's pretty hard to justify that it's all solely for the purpose of retirement.
Super balance limits
Similar to the tax concession limit, there are suggestions that Labor is going to propose a cap on super balances altogether.
The earnings in your super fund are only taxed at the reduced rate of 15%, and once you retire your earnings are generally tax-free. Placing a balance limit on super funds stops people from hoarding money in their super to avoid tax.
Again, if a limit was introduced it would be rather large, likely somewhere in the more than $3 million range.
So unless you have an excessively large super balance, the proposed super changes around tax concessions and balance limits are unlikely to really impact you at all.
It's good to keep in mind that these are all just proposed changes right now. They may change or get scrapped before the federal budget this year.
If you haven't checked how your fund is performing for a while, it could be time to compare super funds and make the switch. Switching to a high-performing super fund can help you retire with tens of thousands of dollars more (it's easy to change super funds, we promise).
