New taxes, new handouts amid new rules for superannuation

There’s good and bad in this week’s suite of superannuation rule changes that came into force from July 1 | Here’s what to do about them.

Compulsory super payments means younger people will be far better off in retirement.

Superannuation rule changes are confusing and happen too often for most Australians who simply want certainty.

A new financial year heralds fresh rule changes. The new moves are a mix of celebrated and controversial.

There’s more super for employees, bigger tax-free pension allowances and super paid on parental leave are all welcome. On the flip side, the government’s new policy to tax unrealised capital gains on super balances above $3m continues to attract harsh criticism.

Here’s how super fund members can respond to each rule change.

Compulsory super climbs

The increase in employer Superannuation Guarantee payments from 11.5 to 12 per cent from July 1 means bigger final nest eggs for almost 10 million workers, and happens automatically in your pay packet.

The move was the final in a series of increases from 9 per cent since 2013 and the Super Members Council estimates the latest rise adds an extra $317 annually to an average wage earner’s super balance and an extra $22,000 by retirement for a typical 30-year-old.

Super Members Council CEO Misha Schubert says the overall impact of the rise from 9 per cent to 12 per cent means “a 30-year-old today will be more than $130,000 better off in retirement”.

While the rise is automatic, super savers should check they are receiving their entitlements, and people with salary sacrifice arrangements should understand their employer super payments now represent a greater slice of their $30,000 annual concessional contributions cap.

NGS Super financial planner Charlie Daher says more money going into super means people may want to review their investments.

Bigger tax-free pension caps

On July 1 the limit on how much individual retirees can hold in tax-free account based pensions climbed from $1.9m to $2m thanks to indexation.

Daher says this applies to individuals starting a pension after July 1 and potentially boosts peoples’ retirement income.

“Australians may want to review how they structure their assets and whether they’ve maximised what’s in their pension phase to take advantage of tax-free earnings,” he says.

“The increase in the cap may also benefit some Australians with an existing pension as the remaining cap space is also indexed.”

Each member of a couple can hold $2m in an account based pension, so savers should aim to even up their super balances as they approach retirement.

Chartered accountant and Mr Taxman founder Adrian Raftery says for couples with unequal super balances, “a good recontribution strategy of transferring super from the higher balance to the lower one will derive significant benefits for the savvy”.

Labor’s tax on unrealised gains

The government’s plan to slap a new 15 per cent tax on earnings from super fund balances above $3m, taxing unrealised capital gains in the process, technically started on July 1 despite not being passed through parliament yet.

While initially targeting wealthier super fund members, its lack of indexation will draw many more Australians into its tax net as incomes and super balances grow. Labor’s plan taxes gains in super funds with balances above $3m between July 1 2025 and June 30 next year.

Most super changes are positive, but some will sting wealthy retirees. Picture: iStock

Dr Raftery says it is “bad tax policy to be taxing unrealised gains and it will severely affect the investment strategy for good savers who elected to purchase illiquid assets such as property”.

“If someone has more than $3m in super and have yet to consult with their advisers, then they should do so immediately on strategies on counter this controversial tax,” he says.

“Especially important if you have the majority of funds sitting in illiquid assets within a self-managed super fund.”

Parental leave

Superannuation is now being paid on parental leave, which increased from 22 weeks to 24 weeks from July 1 at a rate of $948.10 per five-day week.

The Australian Taxation Office says it will automatically contribute 12 per cent super directly to a parent’s super fund.

“Once you’ve done your Parental Leave Pay claim, you don’t need to do anything further,” it says.

“If you share Parental Leave Pay with another person, each person is eligible for a superannuation contribution on their share of the payment.”

Originally published as New taxes, new handouts amid new rules for superannuation