Superannuation tax changes: what experts say you should do now

Government plans to lift superannuation taxes for richer retirees have been criticised, and financial advisers say it should spark action for everyone.

Super fund members are being urged to use the furore over future tax changes as an opportunity to check their own retirement savings.

Government plans for a 30 per cent tax on super balances above $3m from 2025 will affect less than 1 per cent of Australians initially, but that is forecast grow to about 10 per because the cap is not indexed to inflation.

The proposal has also been criticised because it will force people to pay tax on the growth of their assets within super, even if they have not sold the assets.

However, financial advisers say super remains the best place for most retirees to hold their wealth because earnings will be tax-free up to $1.9m per person, then taxed at just 15 per cent on further amounts up to $3m.

Modelling by the Financial Services Council found the lack of indexation means a 30-year-old today has a real cap of about $1m, raising questions about fairness. It says a 25-year-old currently earning $100,000 annually and with just $35,000 in super will reach the $3m threshold by age 65.

JBS Financial Strategists CEO Jenny Brown says people have time to deal with the changes.

The modelling found 500,000 taxpayers – six times more than current government estimates – would eventually be impacted. Australia currently has more than 14.5 million taxpayers.

JBS Financial Strategists CEO Jenny Brown said “super is still the most tax-effective way of saving”.

“We are encouraging our clients to put as much money into super as they can, and then look outside super to where they would invest if they go over the caps,” she said.

“I wouldn’t be rushing out to do anything now … Unless you have over $3m per person, it’s unlikely in the short term that you will be affected. You have got time to deal with assets if you have to get them out of super.”

Lightbulb Wealth managing director Heinrich Jacobs said people should not overreact to the current debate.

“It’s a good opportunity to have a look at your super, how you are invested, and your risk profile,” he said.

“Most people sit in default balanced funds, particularly young people, when perhaps they should be more in higher-growth strategies.”

Now is a good time to see where your super balance is likely to end up. Picture: iStock

Australians can use free calculators from their super fund or the moneysmart.gov.au website to project how their current super balance should grow.

The new tax is not guaranteed because the Opposition has vowed to stop it if it wins the next election.

Pride Advice CEO Brett Schatto said if it did eventuate, people’s financial strategies would adjust to minimise tax.

“It’s a long game – I wouldn’t panic,” he said. “There’s plenty of time to make alterations.”

Advice might be helpful, Mr Schatto said. “It could be a once-off appointment, but you can get an indication.”

He described the government’s efforts to reduce tax benefits for wealthy retirees as “using chicken wire to collect the mozzies, and it goes through the net”.

Originally published as Superannuation tax changes: what experts say you should do now