In the past week or so, there has been a debate where the Federal Government was seeking to enshrine a definition of superannuation in law. The aim is to preserve superannuation savings to deliver income for a dignified retirement in an equitable and sustainable manner. This would involve considerations on superannuation tax concessions and protection of superannuation system against future policy on early access to retirement savings. 

The Government has announced that, from 1 July 2025, tax on superannuation earnings for balances over $3 million will double from 15% to 30%. This measure will affect only 0.5% of Australians and generate an additional tax revenue of $2 billion a year. The $3 million threshold will not be indexed, indicating that the level at which higher tax would be levied would not rise over time.

The existing tax concessions on superannuation is massive. According to an analysis by Australia Institute, these concessions are forecast to cost the budget $52.6 billion in 2022-23, just under the total cost of the age pension at $55.3 billion.

Currently, superannuation enjoys a generous taxation regime. Australians can make before-tax contributions to their superannuation funds which are taxed at a flat rate of 15%. The concessional contributions are currently capped at $27,500.

The earnings of the superannuation funds are also taxed at 15%. Once Australians retire, investment earnings in their funds are generally tax-free and payments (income stream and lump sum) to superannuation fund members once they are aged 60 or over are also generally tax-free.

Australians who are High-income earners face income tax rates of up to 45% on their earnings. But, they pay only 15% tax on concessional superannuation contributions, a potential saving of 30%.

An analysis by the Association of Superannuation Funds of Australia (ASFA) in 2019 shows that approximately 320,000 Australians had super balances of over $1 million, about 80,000 having more than $2 million and about 11,000 had over $5 million.

Although these figures were reported in 2019, the balances are unlikely to have risen by very much since that year. The average superannuation balance is $150,000 and 67% of Australians have less than $100,000 in superannuation savings.

According to Grattan Institute, the superannuation tax concessions unfairly benefit wealthy Australians– with 67% of the value of the concessions going to the top 20% of income earners. The remaining 33% of the concessions are shared by the other 80% of superannuation fund members. This reform to the superannuation tax concession regime would contribute to a retirement income system that is fair and equitable.

Superannuation system was designed to provide a comfortable retirement income rather than a vehicle for wealth creation by high income earners.

Future policies shouldn’t erode superannuation balance for Australians, even if in the guise of assisting first home buyers or paying for university debt. A recent Covid-19 pandemic policy allowed Australians to withdraw up to $20,000 from their superannuation funds ahead of retirement if they had lost jobs or had working hours reduced.

Approximately $36 billion was withdrawn under this policy in 2020. In the analysis of ASFA, roughly 1 million superannuation accounts were left with less than $1,000 and about 160,000 accounts were emptied and closed.

Australian superannuation industry is one of the largest in the world, with over 3.3 trillion invested in it. A legislative definition to determine what exactly these funds should be used for as well as having an equitable taxation regime would serve well in retirement income for all Australians.