The Australian superannuation system, a cornerstone of retirement planning for working Australians, could be on the cusp of a significant transformation. A new report by the Actuaries Institute has put forward a bold proposal that promises to simplify the complex superannuation tax structure, potentially saving $1 billion in operational costs annually for businesses.
The current superannuation system, while effective, is often criticised for its complexity and perceived inequities between younger and older taxpayers. The Actuaries Institute’s report, authored by experts Richard Dunn, Michael Rice, Jennifer Shaw, and Alun Stevens, suggests three major changes that aim to streamline the system and make it fairer across the board.
Firstly, the report proposes a uniform tax rate of 10 per cent on all superannuation, a reduction from the current 15 per cent tax during the accumulation phase. This would mean workers would enjoy a lower tax rate on their super contributions. However, the flip side is that retirees would face a 10 per cent tax on superannuation withdrawals, a significant shift from the current tax-free status.
Elayne Grace, the Actuaries Institute chief executive, highlights the benefits of such a change, stating, ‘This would enable a simpler system where people could have just one super account, build stronger balances from when they begin working and save money on fees.’ The simplification could lead to more substantial retirement savings and reduced administrative costs.
The second major change targets the way taxes are applied to retirees who withdraw large sums from their superannuation. The report suggests adjusting the tax thresholds for high withdrawals to prevent individuals from exploiting the system by taking out large amounts before claiming the aged pension. The proposed thresholds, set at $250,000 and $150,000 per annum, would be balanced by compensatory adjustments to the age pension for those adversely affected.
These measures are designed to encourage retirees to utilise their superannuation for its intended purpose: providing income for a dignified retirement. Jennifer Shaw, one of the report’s authors, explains that the changes would ‘leave the system largely unchanged for most retirees’ while still allowing for significant withdrawals for immediate needs, such as healthcare or mortgage payments.
The third recommendation involves equalising the tax treatment for concessional (tax-deductible) and non-concessional contributions once they are within the super fund. This would remove the current distinction and could encourage more strategic saving for retirement.
Richard Dunn, another report author, emphasises the need for reform: ‘We have a superannuation system that’s working, but it’s one of the most complex in the world.’ He believes that the proposed changes would not only simplify super for consumers and funds but also improve equity across the system.
Moreover, the reforms aim to discourage the use of superannuation as a vehicle for accumulating tax-free bequests, thereby aligning with the system’s goal of supporting retirees rather than serving as an inheritance planning tool.
The Actuaries Institute’s report has sparked a conversation about the future of superannuation in Australia. If implemented, these changes could lead to a more straightforward, equitable, and cost-effective superannuation system. Businesses stand to benefit from reduced operational costs, and employees could see their retirement savings grow more efficiently.
We invite our readers to share their thoughts on these proposed changes. How do you think the superannuation system should be reformed? What impact do you believe these changes would have on your retirement planning? Join the conversation and let us know in the comments below!
10% tax on income streams & withdrawals….?
I would assume this proposed idea would only apply to new funds otherwise NO benefit to those just retired that didn’t have there fund earnings taxed at the proposed lower rate.
I agree with Keith. If the withdrawal tax is applied to superannuation investments that are existing the proposal would cost people more. I am not enthused by any change to superannuation. The government is saying that it is not achieving what was intended but for most people they have not had compulsory superannuation contributions for their entire working life.
So after paying the higher rate of tax all their working lives, then not qualifying for a pension in retirement but having to struggle to find ways to make superannuation deliver sufficient income to live on, those living off their super will now have it taxed at 10%???
That will make it very hard for many who are not much over the pension assets limit but whose investments are not returning particularly well.
Let’s say a couple has $1.1 mil in total assets. Assume $150,000 of that is in motor vehicles and other personal assets and they have $950K in super returning an average of 5% pa. (yes I know some funds do better, but some also do worse) That delivers $47500. Take out fees, reducing it to maybe $47000. Then take a 10% tax. That leaves only $42300, with none of the pensioner concessions that apply when a couple relies on a full aged pension of nearly $45000 pa.
Maybe Keith is correct and this would only apply to new funds – or at least not to folk who are already retired and self-funded? Otherwise, it seems to me just another strong incentive (and there are already significant incentives) to NOT be self-funded in retirement, but use up your savings and super and claim a pension.
This story is so out of touch with people who are currently retired and paid their 15% tax in regards to Super during there working life. Most people that are retired now, didn’t start there working life with any Super contributions. They also started with 3% company contribution. Not like today with 12.5%. Also if a person going into care and needs to withdraw a large amount for the RAD (Refundable Accomadation Deposit) to reduce their daily costs in care, would that be taxed at 10%. The proposed 10% tax would effect so many retired people in varies different ways example being – Health care payments, Rent, Village life payments and that is just a few. I hope Keith is correct. Its sounds like another attempt to raid peoples Super accounts once again!
Is this 10% only on large amounts you withdraw or on your monthly payment from your supa ?and does the tax go to the government coffers ?.We don’t have a lot of super and the little we have in the bank and a small amount of pension we can survive.l think whoever drafted this concept explain it a little better
Ross
I think some of the comments here ignored the part where it said “withdrawals to prevent individuals from exploiting the system by taking out large amounts before claiming the aged pension. The proposed thresholds, set at $250,000 and $150,000 per annum”
Although they are sort of right in the case where a nursing home or such like needs a large cash extraction from the superannuation pension account.
I have one message for the idiot who came up with this idea “hands off my super” I am sick of government trying to eat into my super. I worked my whole life to create a self funded super retirement now 6 years into it some bean counter has found a new way to upset what took me a lifetime to achieve its as bad an idea as the Cba idea to tax withdrawals ..it’s my money I worked hard for it and so many other retirees have done the same.
When you reach pension age everyone should be entitled to the age pension. What’s the point of working for 60-70 hours a week paying a high tax rate being self funded and then watching others lie/cheat the system to get a pension. It is a complete joke form all sides of political parties.
I agree with the shift of the taxing of super from the accumulation phase to the retirement phase, as this give the Super Fund more of your money to invest, cresting a larger total for retirement.
But, there needs to be Grandfathering of current accounts that are in retirement phase, and the tax slowly introduced to reflect the number of years that the change has been in action and increasing the retirement tax by that percentage of the 10% per year until the full 10% is attained. Yes this will take a large number of years to be complete, but to do it any other way would be (virtually) criminal, especially to current retirees.
Honestly what moonbeams do these actuary’s and super companies live.
They obviously have not lived through the nightmare of the retired people who have one partner who is in aAgedcare , because they are sick, and their partner being a self funded retiree trying to care as a volunteer and trying to manage to try and use the super to make money to pay the govt means test payment, monthly fees after paying$500k RAD and the expenses of their own home.
The Australia I use to know cared about its old and those who are sick. No longer.
The govt and the private sector are all about money and shareholder value and are the worst example of ageism.
By the way this looks like an inheritance tax.although for those over 75 there is already a 17% inheritance tax on money left to someone’s estate.
Disgraceful.
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These proposed taxation forms will effect self funded retirees who have had to deal with Julia Gillards 30% Super Tax our former Labor Prime Minister. It is always labor that comes after self funded retirees and yet public servants pensions never are penalised. I have already paid hefty tax during my working career three times more and now they want another 10% it has to not effect people who have the tax free pension now we have paid our tax. One way to fix it just vote Liberal because Labor is now a proxy for the Greens and Teals who do not care at all for the middle class just the inner city elites, just ask the farmers. I am ashamed of what the Greens have planned on self funded retirees especially the Teals.
The Libs are what they are. For good or not so good.
Labor is not what they purport to be.
They are an embarrassment to all Australians .
We badly need a new Minister for Foreign affairs.
M/s Wong is way out of her skills set.
Merry Christmas.
Wages are being taxed twice as I see it. Am I wrong, or right?
This is another example of people cannot leave superannuation rules alone. I am about to retire, and trying to plan. The cost of living is horrendous now, with insurance costs again going up. These suggested amounts once in, would no doubt change and for the worst. Australia is certainly not what it once was. Any government who implements this would brave.
I find the proposal interesting. I am 79, well beyond the 75 cut-off point for super contributions. My wife currently draw from an account-based pension. I still teach both TAFE and secondary on a short-term contract basis. I understand the current rules my employers make super contributions to a separate accumulation super account, which is currently non-taxable.
I wonder how the changes will affect me.
I am tired of governments of all persuasions fiddling with the super system with the ultimate goal to make retirees pay double taxation on their hard-earned savings.
Like many others we are in our early 70’s and trying to plan for the future which is unknown. The superannuation we both get pensions from, the accumulation fund is there if we need to access money for AGED CARE RAD. Surely, we are not going to get taxed on this withdrawal if we need it. When people take out large sums for super to get a pension is there any follow up requesting proof of what they have spent it on?
So, they can afford to subsidise childcare for families earning over half a million dollars. With both of us working we didn’t even get to $100,000. Surely if you earn that much you can afford to pay childcare. What happens when you subsidise more, they put their fees up? We lived through the high mortgage rates (18%), no funded family leave, no paternal leave, no carer’s leave, and now you are going to hit those of us who have looked after our money and planned for our final years without financially burdening our families.
Hi, Glenda the RaD is not taxed when you take it out of super.
However the rAD is counted as an Assett when the Govt assess your meads test fee.
However it is not taken into consideration in the pension calculation.I thinking to note is that beyond 75 if one partner passes the RAD cannot be returned to super,just your bank etc.
However when the second partner passes probate will take 15 or17% of the remaining untaxed portion of the remaining super.
So when they say super is not taxed it is in what I see is an inheritance tax.
Government is the most unfair and Ageist of all of society and what’s worse,neither side care.
Cheers