Superannuation wars: why Labor is right to announce changes now

People in their early sixties typically have about $290,000 to $360,000 in super, and young workers on average incomes are unlikely to get close to having $3m, which makes it clever politics.

Labor has clearly broken an election promise not to make changes to superannuation, but a massive public backlash is unlikely.

Its decision to increase taxes on individuals’ super balances above $3m will be ammunition for Coalition attacks for weeks, months and possibly years, but making the move now makes sense.

In 2025, when the next federal election rolls around, will voters really care that the Labor government announced plans in early 2023 to hit wealthy super savers with higher taxes?

This new hit on savers could have been much worse. Had Labor put a hard cap on super balances, it would have destroyed the retirement strategies of many Australians by forcing them to sell expensive assets such as commercial and residential properties.

Instead, Labor says only earnings on balances above $3 million will be taxed at a maximum 30 per cent rather than the current maximum 15 per cent. Large super accounts will “continue to benefit from more generous tax breaks on earnings from the $3 million below the threshold,” it says.

This suggests a couple can have a combined $6 million each in super taxed at a maximum of 15 per cent, with a large portion of it tax-free if their savings are in pension phase.

Savers have plenty of time to prepare for Labor’s super tax changes – more than two years.

While Labor’s claim that it is not changing the rules because its rise won’t apply until 2025-26 doesn’t pass the pub test, the fact is most people at the pub would agree with its argument that those with millions of bucks in super don’t need big tax discounts.

Even respected superannuation industry bodies and self-funded retirees agree that the current rules are too generous.

Super still remains relevant to the average Australian family, even a well-off Australian family.

The average super fund balance of a woman aged 60-64 is $288,000 and for a man it’s $358,000, according to the ATO and the Association of Superannuation Funds of Australia, and the median balances are less than half the averages.

For younger workers aged 30-34, average super balances are near $40,500 for women and $48,500 for men. And unless they make some extremely aggressive contributions over their career, they will never get near $3 million in super each.

For example, projections using Moneysmart.gov.au’s superannuation calculator show a 30-year-old who earns $100,000 annually and has $50,000 of super in a typical fund will see their nest egg grow to $667,000 in today’s dollars by the retirement age of 67.

Even if they salary sacrificed $250 of their own money every week into their super for the rest of their career, the 30 year old would still be under the $3 million threshold, although inflation will have an impact.

The argument that constant rule changes to superannuation deter Australians from using super is flimsy, because people will put their money where they get the best benefits – and superannuation still wins hands down for its low or no-tax retirements and tax-deductible contributions.

I’ve been writing about superannuation for more than two decades, and cannot remember a single year where there were no changes to the rules. Arguably, the Coalition’s 2016 introduction of a $1.6 million cap on zero-tax retirement pensions was a tougher rule change for rich retirees than what Labor has just dished out.

The new super changes are not a fatal move for Labor’s 2025 election prospects. But if it tries to change negative gearing again, or franking credits, or plans to start taxing Australians’ family homes, or tries to tell us where to invest our super, we may be having a different conversation.